How To Protect Your Retirement Savings From Inflation

20 December, 2022

​​​​​​​Planning for your retirement? It is important to take note of inflationary trends while doing so. Simply put, inflation is the rise in prices of products/commodities over time. Inflation erodes the purchasing power of money. It increases the need to have more money at your disposal to meet your future needs.

How does inflation impact retirement savings?

Inflation could have a big impact on your retirement savings. Many senior citizens rely on pension income and retirement savings. Retirement inflation means you will have less net inflation retirement savings at your disposal. Currently, the global economy is dealing with a lot of uncertainty and inflationary pressures, which impact India as well. Rising inflation, global supply chain issues, rise in commodity prices, and the ongoing Russia-Ukraine geopolitical crisis are some major global challenges that impact the prices of almost everything we consume or purchase in some form or the other.

2022 has witnessed the inflation rate in India rising over the past few months. A few factors contributing to this include the rise in food prices, crude oil prices, and global supply chain disruption.

India's fluctuating inflation levels will continue to affect the common man and salaried person's income. Rising/fluctuating inflation will also impact pensioners. This is why it is essential to start early with impactful measures to protect your retirement savings from inflation.

Continue reading this article to understand how to protect your investments from rising inflation.

How to protect your retirement savings from inflation?

You need to revamp your current investment strategy.  For example, you need to invest some of your savings in inflation-hedging instruments to protect your retirement savings.

Here are some tips to show you how to protect your retirement savings from inflation and its adverse effects:

• Invest in equities
  
  Equities can withstand inflationary pressure and deliver positive real returns. You should consider investing in equities as they are one of the ways to beat the inflation blues and gain good returns over time. Equities are risky for short-term investors. Consult an expert to evaluate how much equity exposure would benefit you to manage inflation over time and gain high returns.
  
  

• Diversify your portfolio
  
  To gain maximum returns and minimise risks, you should have a diversified portfolio with a steady mix of debt and equity assets. Experts consider investing 30% in equity, 30% in fixed income, 30% in real estate and the balance of 10% in cash and gold as the most balanced and diversified portfolio. Investing in a diversified portfolio would help you spread the risk across different asset classes during inflation, thus minimising risk and still gaining good returns.
  
  Options, like HDFC Bank’s investment services, will help you get a customised portfolio for investing in income-generating assets. For instance, they will guide you to invest via a Systematic Investment Plan (SIP) to help you maintain investing discipline and benefit from rupee cost averaging. Similarly, invest across various retirement savings options that offer long-term stability and high returns on your investments.
  
  

• Park floating rate bonds funds in your portfolio
  
  Investing in floating-rate bond funds will help you gain over the short term when there is high inflation. Normally, inflation and interest rates move in tandem. Whenever the inflation rate exceeds predictive forecasts, RBI increases short-term repo rates to manage demand. Floating-rate funds are invested in bonds with coupon rates linked to the benchmark interest rate. So, investing in floating-rate funds during inflation helps generate good income over the short term.
  
  

• Be future-ready
  
  Rising inflation causes a drastic rise in the price of essential commodities and services, impacting your spending and cost of living. So, your monthly budget allocation may have to be altered during inflation.
  
  This could mean spending less even on essentials. However, the right investment strategy may help you outpace your investment over time. You can consider Mutual Fund investing through HDFC Bank’s investment services. This option could help you plan for your future systematically.
  
  

Key takeaways

Inflation may cast a shadow on the global economy and everyday life. There are smart ways to manage inflation by investing in the right options. Investing in such options can protect your retirement savings from inflation. A stress-free retirement plan requires having adequate sources to manage lifestyle expenses with an eye for the smallest details.

Visit the HDFC Bank website here to learn about various investment options to beat inflation.

​​​​​​​* Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Investments are subject to changes in tax laws. Please contact a professional consultant for an exact calculation of your liabilities.