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Planning for your retirement? Beware of the 'silent thief'

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INFLATION is referred to as “the thief in the night”. But what is inflation and how does it impact your life?

Inflation is the rate at which prices increase in an economy over time. It robs your money of the purchasing power. Therefore, your money buys less and less. Inflation is regarded as a “silent thief”. It is simply the rise in prices of goods and services as when prices go up your money buys fewer goods and services. Many persons don’t pay attention to inflation and are not aware of the impact inflation has on their daily lives. No one escapes inflation as it impacts the lives of everyone in the economy — the employers, employees, government, businesses, the retirees and others who are earning a fixed income.

It’s when you are ready to spend your money that you realised that the “thief” called inflation has robbed you of the value of your money. American journalist Henry Hazzlit said, “Inflation is a form of tax, that we all collectively pay”. Inflation impacts people’s lives differently; it can make the rich wealthier and the masses poorer.

Inflation targeting

Inflation targeting is a term that the average Jamaican may not be familiar with. It speaks to a strategy by the central bank (Bank of Jamaica), whereby an inflation rate is set as a goal, and monetary policies are adjusted to achieve the targeted rate. The Bank of Jamaica sets an annual inflation rate of between four per cent and six per cent. This inflation target is expected to create economic growth and development. Monetary policy is a strategy employed by the central bank to maintain price stability in the economy. Research shows that the inflation rate stood at 5.30 per cent in July 2021.

Speaking at an investment forum recently, senior deputy governor at the Bank of Jamaica Dr Wayne Robinson said there is the likelihood that inflation may surpass the six per cent target this year. However, he expects the rate of price increases to lessen gradually within the targeted inflation goal of four per cent to six per cent by year end. Dr Robinson pointed to shipping costs which have increased by “over 300 per cent” during the pandemic.

Implications for retirement planning

Inflation robs us by the amount goods and services we can buy with our money. If a loaf of bread cost $450 now, with a targeted rate of inflation of six per cent per year, it means that in five years a loaf of bread will cost more than $600 and in 10 years that same loaf of bread will cost over $800.00. It is, therefore, important to factor inflation when planning for retirement. If you currently contribute to a pension plan, what is the annual rate of return projected on your retirement plan? Have you discussed with your financial advisor the impact of inflation on your savings, investments and pension funds? It’s not enough to just make contributions to a pension plan. The rate of return and the period of time the funds are invested will determine your retirement income. Therefore, your pension fund should be earning above the rate of inflation so that the purchasing power or the value of your money increases instead of losing value due to inflation.

As a financial advisor I have interviewed many persons who contribute to pension plans, but are not aware how much retirement income they are projected to earn in retirement. Another concern is that, some contributors do not know the rate of return they are earning on their investments and in most instances are not aware of the current rate of inflation. Neither are they aware of the projected rate of inflation even if it is stated in their pension documents. Remember inflation is a like a thief in the night. It robs those who are not prepared.

Are you a pre-retiree? Now is an opportune time to review your retirement plan to ensure that it is beating inflation. What if your pension funds are behind inflation? It’s not too late to invest. Investing in a diversified fund of stocks and bonds will ensure that you are beating inflation and your money is increasing in value. There is a rule of thumb to guide you as to how much stocks and bonds should be in your diversified fund. Subtract your age from 100. The difference determines how much stocks should be in your diversified fund. Eg, if you are age 60, subtract 60 from 100. This means you should have at least 40 per cent of your investments in stocks. Remember this is a guide. If you are in good health you can subtract your age from 110 instead. The difference of 50 per cent is your guide as to how much of your portfolio should be invested in stocks. If you are in retirement, keep investing. Inflation robs the fixed income earner continuously, of purchasing power. Don’t be a victim of inflation. Author of the book The Power of Money Dynamics, Venita VanCaspel, said “inflation takes from the ignorant and gives to the well informed”.

Grace G McLean is a financial advisor at BPM Financial Limited. Contact her at gmclean@bpmfinancial or visit She is also a podcaster for Living Above Self (