FOR many seniors and pre-retirees, 2022 brings into sharp focus the impact of inflation on the purchasing power of their investment and retirement funds.

In particular, pre-retirees who will stop working in another few years, the prospect of retiring comfortably seems daunting if inflation is not kept in check. Despite the uncertainty that the pandemic brings with the new Omicron variant and the possible introduction of other variants, there is a sense of acceptance that we have to learn to live with COVID-19, at least for the immediate future.

The global economies are concerned with how to curtail inflation this year and improve consumers’ confidence. Some economists forecast that 2022 will produce global economic growth as well as increase inflation.

There is also a positive outlook for stocks in comparison to bonds.

I had the opportunity of addressing a group on retirement planning, where a concern was expressed by one of the attendees that she was not interested in starting a formal pension plan, as inflation would erode all the gains by the time she retires. It was a valid point to note. This is why it is important that employees, employers and self-employed persons recognise that keen interest needs to be paid to the average interest rate that your pension plan is projected to earn, as well as the current and projected rate of inflation. When it comes to retirement planning, inflation should be included and address as a major risk to pension fund management. Pension funds should be averaging rates of return that are above the rate of inflation, and investment strategies ought to be implemented to ensure higher rates of return. Therefore, diversification strategy is key.

BPM Financial Limited consistently offer higher rates of return on pension funds and is one of the leaders in pension fund management in Jamaica. When it comes to planning for retirement, financial literacy is important. It’s important to understand how your money work for you.

It’s is advisable to invest in long term investments, such as stocks, to supplement your pension income in retirement and protect your earnings from rising inflation. Investing in a managed fund or pooled fund helps to minimise investment risks and also reduces the cost of investing when compared to buying individual stocks. It has been proven that persons who have streams of income, including a formal pension plan, are able to live in comfort and some are able to create wealth in retirement. Therefore, a formal pension plan is important, as it provides a fixed income for life. The earlier one starts a pension plan the more time the funds have to compound, and give significant income in retirement.

The younger generation should be encouraged to start a pension plan early. The Jamaican pension law allows an employed person to be eligible to contribute to a pension plan from as early as 18 years of age. It’s the consistency that counts. Time and compound interest will work wonders for the individual who starts early and remain consistent in making pension contributions all the way to retirement.

Inflation, however, is a real threat to retirees who earn a fixed income, especially at this juncture where it is expected to rise even higher in 2022. Now is the right time for future retirees and new retirees, especially those retiring this year, to examine their investment options and understand how inflation impacts the purchasing power of their savings and take appropriate steps to protect the value of their investments for the future.

The latest Annual New Year’s Resolution Study by Allianz Life showed that Americans see inflation as the biggest risk to their retirement plans in 2022. The United States inflation rate stood at seven per cent at the end of 2021, the highest since 1982.

Based on a Statistical Institute of Jamaica report, inflation in Jamaica peaked at 8.5 per cent in October 2021. A press release from the Bank of Jamaica (BOJ) indicated that inflation is expected to rise to a high of nine per cent up to August this year. The forecast speaks to the prices of international commodities and shipping, cost of energy and other services which are likely to fuel inflation.

The BOJ intends to implement monetary measures in an effort to have the inflation rate reduced to between four to six per cent by the latter part of this year.

I recommend that seniors and pre-retirees seek the assistance of financial professionals to review and implement investment and retirement strategies to reduce the impact of inflation on the purchasing power of their savings and investments.

Grace G McLean is financial advisor at BPM Financial Limited. Contact her gmclean@bpmfinancial. and visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above S elf. Email her at livingaboveself@gmail.com