How To Protect Your Retirement Savings During Inflation

by | Oct 26, 2022 | Savings and Investments | 0 comments

As a series of global economic, social and political crises rage on, researchers from the Economic and Social Research Institute (ESRI) now forecast inflation to average 8.1% in 2022 and 6.8% in 2023.

This represents an almost 40-year high, which is worrying for everyone — but in particular for those who are on the verge of retiring.

With fuel and food prices on the rise, many will struggle to get by on their pension, especially those on a State pension of €253.30 per week.

In this article, we outline some practical strategies to protect your retirement savings from inflation during these uncertain times.

 

Top tips for protecting your retirement savings during inflation

 

 

If you’re young, go for medium to high-risk investments

 

If you are in your 30s or 40s, or even your early 50s, the chances are that today’s inflation will not have much of an impact on your pension.

Low-return investments are a cautious choice, but by taking on a medium to high-risk investment, you will be able to build up a sizeable pension pot and be in a better position to combat inflation.

 

Check if you have inflation protection built into your pension

 

You may already have some protection against inflation built into your pension, so it’s worth checking this out. If you have a work pension where the amount increases each year, the increases may be in line with inflation or even the pay increases of your replacement.

 

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Resist the temptation to dip in early

 

If you have a pension scheme with a company you previously worked for, it may be possible to dip in from the age of 50 onwards. However, as tempting as it is to take a little bit here and there to help cover your costs in the short term, remember that your pension is supposed to see you through the whole of your retirement.

The more you take out early, the less you leave for your future self.

 

Choose wisely between an ARF and an annuity

 

At the time of retirement, most people have the option to reinvest their pension pot into an ARF (Approved Retirement Fund), or take an annuity. An annuity will provide you with a guaranteed income for the rest of your life, but the weekly amount might be much lower than you expect. If you want to protect your pension against inflation, an ARF might be a better choice as it provides more flexibility than an annuity, and you can withdraw money regularly to give yourself an income.

After you pass away, any money remaining in your ARF can be left to your next of kin, which is another big advantage. Just be careful not to withdraw too much or you risk leaving yourself short when you retire.

Another important point to bear in mind is that the amount you’ll get in retirement depends on the investment performance of your ARF. It will suffer more from inflation if it performs badly in any given year. An alternative option is to buy an index-linked annuity, which means that the value of your pension will increase each year.

However, this is an expensive option and it may not start to pay off for ten years or more.

 

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Consider a multi-asset fund

 

If you are interested in investments that can keep pace with inflation but you don’t want to take on too much risk, then a multi-asset fund might be the right choice for you.

The exposure to various investments, from equities to property, bonds and commodities, means that the risk should be lower and the chances of making a return are higher. As you move through retirement, you’ll start to approach lower-risk funds.

The most important thing is to do your research and decide on a multi-asset fund that suits your retirement stage and risk profile, as well as gives you the investment exposure that you want.

 

Get impartial advice and protect your savings from inflation

 

Our final tip is to seek guidance from an independent financial advisor before making any decisions about your pension.

We’ve outlined our best strategies above, but the reality is that there are no guarantees when it comes to money — especially during periods of uncertainty and economic instability.

During these troubling times, Symmetry Financial remains your trusted, impartial source for financial advice.

Get in touch today for all your retirement planning and financial planning needs, and don’t forget to also check out our blog and resources for the latest news and insights.

If you’d like a free, no-obligation consultation for your mortgage, pension or financial needs, get in touch here, call us on 01 6831673 or email us directly on info@symmetryfinancial.ie.