Inflation impact on retirement corpus

Inflation affects all of us but has a greater impact once you are no longer working full-time and managing your regular expenses from a specific retirement corpus.

Inflation reduces your purchasing power – When the cost of goods and services increase faster than what you have in your savings account, the money you have will buy fewer and fewer goods and services over time. Unfortunately, the need for these goods and services don’t necessarily go away. Therefore, you need to ensure, you have a concrete retirement financial plan to meet your required expenses.

Inflation consumes your savings faster – Due to failing to account for inflation reduces the purchasing power it will impact eroding your portfolio faster.

Some of the biggest changes in your budget will occur when you retire. Without making detailed retirement financial plans sometimes you estimate lower budgeting and sometimes higher budgeting. Analyzing expenses is the core of budgeting. Differentiate between monthly expenses, yearly expenses, and lumpsum expenses are important.

Mis-selling means that you were given unsuitable advice, the risks were not explained to you, or not given the information to you which needed and ended up with a product that isn’t right for you.

Mis-selling is a significant problem in the financial services industry. Brokers, financial advisors, bank representatives, or other salespeople of financial products who are compensated based on commissions. Usually, they sell investment products based on how much they can earn rather than what is suitable or what is needed by investors.

In the Indian financial market for investment decisions, investors mostly dependent on financial agents and companies. From the last many years some of the agents and so-called “Financial Advisors” are using fancy words and tactics to investors and sell them inappropriate products like insurance policies, high-risk mutual funds, and bonds, etc.

The cost of mis-selling financial products affects the investor’s portfolio security, returns, and risk management. (Investors lost 1.5 trillion due to mis-selling – source livemint)

Many times we have seen brokers, financial advisors, bank representatives, have their own interest and biases in business and high commission products.

High commission-based investment products increase the expenses of the portfolio and that affects portfolio returns. Examples like high commission fixed deposits, regular mutual funds, insurance policies, etc. In regular mutual funds alone, 8500 Crores of investor wealth was consumed by financial middlemen. The commission percentages for other products like insurance policies and ULIPS are indeed much higher.

Regular Mutual Funds – Regular mutual funds are those mutual funds that are Invest through a mutual fund agent, brokers, distributors, or advisors. Regular mutual funds include commission on a recurring basis. Due to high commission expenses, returns are comparatively lower in the case of direct mutual plans.

Direct Mutual Funds – In Direct mutual funds, agents, brokers, or other intermediaries have no role. Investors are free from commission or distribution fees, which bring down the expenses and give higher returns than the regular mutual funds.

Formation of a Retirement financial plan isn’t of any use if we don’t implement and review it properly. We should not take it as an onetime activity as it requires periodic reviews.

Any event in life which affects your finances and savings pattern will require an alteration in your investment strategy. Make sure you re-examine your plan periodically so that the market changes, your lifestyle changes, etc. are also taken into account.

Insurance companies are never meant to be an investment vehicle, and it’s certainly not the best way for retirement planning. While insurance companies make it possible to fund your retirement, there are risks involved as well as huge fees to consider.

Investors often do not think about tax consequences when making investment decisions. Due to the lack of tax planning, it highly impacts on Retirement Income and Portfolio Returns.

Having a Will gives you the comfort of knowing that the rewards of your life’s work will be distributed and managed according to your wishes. In India, it is generally noticed that people refrain from creating a will and usually tend to leave the future to fate.