Retirement

How inflation erodes savings over the years?

total reads

829

total reads
829

Living long is everyone’s dream but outliving your finances can turn it into a nightmare. Spiraling cost of basic amenities is a constant threat to retirement savings. Better known as inflation, it is the single largest menace that gnaws away any form of savings.

Because inflation is like a silent operator working in the background, most individuals never notice its eroding effects on their finances, until it’s too late.

Inflation has a dual impact on the investor’s hard-earned savings. It not only erodes the current purchasing power of money it also magnifies the monetary requirements for the future.

Therefore the all-important question for the investor is – will his savings withstand the eroding effect of inflation?

Take an investor setting aside Rs 10,000 every month in a savings plan that fetches 10% return. Over 30 years, his corpus will grow to Rs 2,26,04,879, which in his view is a reasonable sum to meet his financial needs at that time.

This is of course the amount he will save, untouched by inflation.

Once you consider inflation – say 5%, then over a 30-Yr period, the sum will halved to Rs 1,13,02,440.

The 10% rate of return on the investment appears reasonable at first, until you factor in 5% inflation. This is the real rate of return – which is what matters at the end of the day.

One way to counter the eroding effects of inflation is by investing a significant portion of savings in equities – like a unit-linked plan (ULIP), particularly at a younger age when the investor has the appetite for risk.

The point to remember at all times is to earn a return good enough to go one up on inflation.

 

Featured Articles
Popular Posts

Products offered by HDFC Life :

HOW CAN WE HELP YOU

HELP TO BUY ONLINE
Call us

All days 10 AM to 7 PM

Let us call you
Call Us

Mon-Sat 9:30 A.M to 6:30 P.M

Locate A Branch Near You
Call Us

Mon-Sat 10 am to 7 pm(Local Charges Applicable.) (DO NOT prefix any country code e.g. +91 or 00.)

Email
nriservice@hdfclife.com

(For NRI customer only)

08000006607 for premium amount
08000006608 for premium amount with due date
08000006609 for fund value (Applicable for Unit Linked Plans only)
Stay updated with HDFC Life