Retirees are vulnerable to inflation because higher living costs eat into carefully calibrated savings plans that do not benefit from the injection of regular wages. Here’s what to do.
because higher living costs eat into carefully calibrated savings plans that do not benefit from the injection of regular wages.freeze the so-called “deeming rate”A bright spot in the budget for anybody receiving the full or part age pension was the decision to freeze deeming rates.
While there is no silver bullet, investors, including retirees, can try to beat inflation pain by considering the following assets and strategies.A higher-inflation environment is often characterised as good for retirees because they tend to be mortgage-free, which insulates them from rising interest rates at the same time as their savings earn more. Indeed, SMSFs held $146 billion in cash and terms deposits, 17 per cent of net SMSF assets of $878 billion at the end of 2023.
“Look at investments that are inflation linked,” Amiridis says. “Make sure the business or the industry you invest in has the option to pass on increases without too much resistance – things like infrastructure, energy and transport.” Lazard Asset Management’s Robertson says it makes sense to own shares in businesses that own ports, toll roads, airports, data centres or other high-quality infrastructure for two principal reasons.
But not all infrastructure is created equal, Robertson adds. “Of about 400 listed stocks around the world about 100 hit the sweet spot of being an essential service, monopolistic, and having inflation-protected attributes,” he says. Loans made by the funds to corporate borrowers are often priced at a fixed margin above benchmark interest rates, which means they give some insurance against central banks keeping rates high to tame inflation.“With higher risk, a higher reward is required,” Pizzichetta says. “It’s important to find a private credit fund manager that has a strong track record of performance, strong relationship with its borrowers, and an ability to manage a default if required.
The professional planner says the rules for investing in the current climate should really be little different from the pre-pandemic period of low inflation. The strategy for any investor is more a function of personal circumstances, than trying to predict an uncertain future, he says.
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