If our future financial planning does not account the inflation factor, then, we are making a big mistake. Inflation is going to play a major in our future. If our financial advisor does not discuss the impact of inflation on our future plans, then it is time we consider looking for a new advisor.
Normally, people love to create plans for their future retirement without considering inflation. Society often tells us that we will get rich by taking a 3% salary increase and saving our money. We will feel contented with this fact, until we realize that the ‘raise’ does not even cover half of the current inflation rate!
In a study by
Food Crisis Prevention Network (Réseau de Prévention des Crises Alimentaires,
(RCPA)), year 2021 indicated inflation remained a primary driver of acute food
insecurity in the area, particularly in the Gambia, Guinea, Liberia, Sierra
Leone, and Nigeria. Food price rises were partly linked to greater
transportation costs as a result of COVID-19 containment limits, as well as
rising commodity prices in overseas markets (RPCA, December 2021). COVID-19
containment measures remained in place, while the economic slump cut
remittances in 2021, further limiting household purchasing power, particularly
for the rural poor, IDPs, and refugees, according to Food and Agriculture
Organization. Moreover, following the 2022 Russian invasion of Ukraine, FAO as
well as other observers of the food commodities markets, warned of a collapse
in food supply and price increases. Much of the concern is related to supply
shortages of key commodity crops, such as wheat, corn, and oil seeds, which
could cause price increases. The invasion also led to fuel and associated
fertilizer price increases, causing further food shortfalls and price increases.
With the current food crisis, we have to re-look into our retirement plans.
We may think that the RM60,000
income that we live on today may be good today, but will it be good thirty
years from now? Probably not. Every year, we experience about 2% to 3% in
inflation, which does not impact us much year-over-year, but over thirty to
forty years from now, it does have a significant impact.
For example, a RM60,000 in 1990 (about thirty-one years ago), has the same purchasing power as approximately RM180,000 today, due to inflation factor.
Therefore, when we embark on the process of developing a retirement plan with RMX as our annual income, we need to make sure that we are factoring inflation into the equation. This is important because we do not want to be left with only half of the purchasing power that we initially thought we had.
If we want to be WEALTHY, we have to
OWN stuff that goes up in value! Or, face the huge kryptonite waiting during
our retirement years, none other than to cripple our well-being.
Words By: Noorliza binti Md Nordin