22 March 2024

Inflation-Proof Retirement: Strategies for Securing Your Future

Retirement planning is a crucial aspect of personal finance, and the end goal of many casual investors is to maintain their standard of living in their golden years. However, the rising costs of living, GST increases, childcare costs, and housing prices in Singapore make it more challenging to combat inflation while building a retirement fund. Many have begun to worry about retiring comfortably and doubt the effectiveness of their current savings plans.

In order to combat inflation and safeguard your finances against fluctuations, it’s ideal to have some form of wealth accumulation. Making sure you have enough money for a rainy day is vital to a peaceful retirement.  

In this article, RHB Bank shares several methods of wealth accumulation that can help combat inflation and market volatility.

What is the Current Inflation Rate in Singapore?

As of December 2023, the headline inflation rate in Singapore has increased by 4.1% year-on-year. This rate is projected to rise even higher in the coming years, with a projected 3.4% in 2024.

As such, it's no longer sufficient to simply let your money sit in a bank and build interest. The interest rates of traditional savings accounts are generally too low to outpace the rising cost of living, and even CPF savings may not be sufficient depending on your preferred lifestyle.

To protect one's finances from inflation, it is best to make the right investments so that savings can grow in value. Investments such as stocks, bonds, and other assets have a far higher potential for returns than savings accounts. This makes it important to stay well-informed on different investment types so you can avoid risk while growing your savings and preparing for your eventual retirement.

4 Ways to Invest & Protect Your Retirement Savings From Inflation
 

Inflation can significantly reduce the value of retirement savings over time. Here are four investment instruments we've identified, which can help protect your funds:

1. Unit Trusts

Unit Trusts are a collective investment scheme, where the money from multiple investors is pooled into a diverse portfolio. A professional fund manager uses this to invest in various assets that can perform well even during inflation, such as equities, commodities, and real estate.

This professional management is a major draw factor for Unit Trusts. Apart from offering access to industry experts, they also offer flexibility, as investors can buy and sell units in the fund at any time. This makes it easy to adjust your portfolio as your retirement goals and risk appetite change.

The diversification of assets also provides a lower-risk method of investment. There's still the chance of market fluctuations, and the performance of individual fund managers could affect your returns, but Unit Trusts are generally considered to be lower risk than individual stocks.

It is important to do your research and seek professional advice when deciding on the Unit Trust fund that's appropriate for your individual needs and circumstances.

2. Fixed Income/Bonds

Fixed Income (also often known as Bonds) can be a valuable addition to a retirement portfolio. Fixed Income are debt securities that provide a steady stream of income for investors.

These bonds are issued by either government entities or private companies to raise capital. They are considered a relatively safe investment as they are backed by the creditworthiness of the issuing entity. As such, it's important to analyse the credit rating of these issuing entities.

Entities with a higher credit rating are considered less risky and are more likely to pay back their debt. Investors should also consider the tenor, coupon rates, call features, and yield of the bond, as longer-term bonds typically offer a higher rate of interest but are more sensitive to changes in interest rates.

3. Structured Products

Structured Products are customised investment solutions designed to meet specific investment objectives—such as retirement funds. Banks and insurance companies often issue these products, and they are tailor-made for individual investors who want higher returns than fixed income securities.

A structured product combines multiple types of investments, such as bonds and derivatives, into a portfolio of assets that can protect against inflation. The end product has higher potential returns, which can be an effective way to mitigate inflation risk in retirement planning.

Structured products can also offer a degree of capital protection. Some structured products have built-in guarantees that investors will receive their initial investment back, even if the underlying assets perform poorly. This can provide peace of mind for investors worried about market volatility.

However, structured products are not without risks. Apart from being expensive to engage, they may be difficult to understand. It's recommended to carefully read all information associated with them and consult a financial advisor before investing.

4. Foreign Currency Fixed Deposit

A reliable, low-risk way to grow your retirement savings is through Foreign Currency Fixed Deposits. These deposits are one of the simplest and lowest-risk types of investment. Over a specific period, you deposit a sum of your chosen currency into a bank account. In exchange, you receive a fixed interest rate that is higher than an average savings account, helping to lessen the impact of inflation.

Many banks in Singapore offer Foreign Currency and SGD Fixed Deposits, making it a simple option for an investor to pursue.

Foreign Currency Fixed Deposits are affected by fluctuations in currency value. As such, some element of risk still exists, making it important to consider your options properly.

Inflation-Proof Your Retirement Plan

Inflation can significantly impact your retirement fund, making it important to protect one's savings from it. Establishing a solid plan and making the right investments can help safeguard your money and help you achieve a stable retirement in the future.

However, managing multiple investments can be challenging, and some investors may prefer to leave it to a trusted advisor. RHB Bank's wealth management services offer a personalised approach to managing savings. Our relationship managers deal with clients on a closer level, allowing them to pay more attention to individual financial goals.

Contact us today to learn more about our investment options, and start securing your retirement fund today.

The inflation rates mentioned are accurate at the time of publishing.

The information presented in this article is accurate as of date of publication.