Inflation and How it Affects Your Retirement
IT is critical to understand INFLATION as it will impact your retirement significantly.
Simply put, inflation is a rise in prices relative to money available. In other words, you get less for your money than you used to.
Here’s an example:
The price of a chocolate bar.
If your pension cannot keep up with inflation, your ability to live comfortably after retirement will consistently reduce.
Saving the maximum that you can every month and having other vehicles in which to save will go a long way to helping you retire comfortably.
It is important to note that unless you have saved a minimum of 15% of your income per month for 40 years your chances of retiring comfortably are significantly reduced.
Currently you can save a whopping 27,5% of your salary in a tax-efficient way, but most of us are only paying the minimum of 15%.
Whatever decision you make today and when you resign – your old age is entirely in your own hands.
You buy a chocolate bar for 50c. A year later, you go to buy the same chocolate bar and it is 55c. You still have only 50c, but the price of the chocolate bar has gone up. We can say that inflation is at work. The price of that bar has been inflated.
People usually refer to inflation when they talk about the prices of more expensive items, like cars and houses. But inflation also affects things like groceries, house supplies, mortgage payments and rent.
When inflation increases and our salaries don’t, it means we have to spend more of our money to buy the same things that used to cost less.