How to protect your retirement corpus from inflation? Points to remember

In an average Indian household, senior citizens retire and mostly depend on passive sources of income or focus on accumulating wealth for the next generation. Simultaneously, one needs to protect the retirement corpus from inflation. It is essential to understand at the outset how inflation impacts real returns.

 

Understanding inflation's impact

 

Inflation is more than just a buzzword, it can dramatically reduce the value of hard-earned retirement savings. “Say today your investment of Rs 1 crore is growing at 7 per cent rate and inflation is hovering somewhere around 6 per cent then you end up with only 1 per cent real return. Thus, it is important that your retirement portfolio caters to your retirement needs and also survive at the same time and for that it is important that one targets a return rate of at least 10 per cent,” said Chethan Shenoy, director & head - Product & Research at Anand Rathi Wealth Limited.

 

“It is important to build a strategy to earn real returns and generate alpha. For this, investors should break down the investment in baskets,” Chethan said.

 

Chetan explains with example:

 

For example, a senior citizen with a Rs 2 crore corpus lives in their own house with one dependent (spouse) and has monthly expenses of Rs 50,000. They are risk-averse but open to some equity exposure. Their portfolio can be structured into 3 different baskets based on fund requirement:

 

- Short-term (2 years): Rs 12 lakh (Rs 50,000 x 24 months) fully in debt for safety.  

 

- Medium-term (3rd to 5th year): Rs 18 lakh allocated 40 per cent in equity and 60 per cent in debt.  

 

- Long-term (post 5 years): Remaining Rs 1.58 crore, allocated 60 per cent in equity for growth and 40 per cent in debt for stability.

 

Points to keep in mind when doing retirement planning

 

Regular portfolio rebalancing: Annual reviews and adjustments can help maintain an optimal inflation-resistant asset allocation.

 

Continued education: Stay informed about economic trends, investment opportunities, and emerging financial technologies.

 

Flexible withdrawal strategies: Implement dynamic withdrawal plans that can adapt to changing economic conditions.

 

Healthcare and long-term care planning: Consider investments and insurance products that can mitigate rising healthcare costs.

 

Utilise retirement calculators: Online tools can assist in estimating the required corpus by incorporating expected inflation rates alongside current expenses and anticipated returns on investments.