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Impact of Inflation on Pension Saving

by Suleman
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What is Inflation?

Inflation is continued growth in the general degree of the cost of goods and services in a given nation and is determined as a yearly percentage change. Under this condition, the value of things changes over time. It is both legal and social in the industry (Hubbard, 1986). However, it has been defined from various views. Inflation is a monthly advantage that the employer gives to the retired workers.

How Inflation Impacts Pension Savings

Let us look at a plan for the pension which grants an employee a benefit on the last average earnings. There are different means in which the actual value of benefits of an employee like that is decreased by changes that are not expected in the inflation and the rates of interests: benefits are usually not listed for the increase after a worker retires (Babatunde, 2012). Therefore, an improvement in the rate of inflation would decrease the employee’s actual advantage in the years after they retire, lower than what was anticipated.

Secondly, if benefits are incorporated with social security and these are connected to inflation, an improvement in the cost level can indicate a decrease in personal pension benefits got. Then, frequently benefits are linked to an average of final various years’ salary rates of the worker. Growth in the rate of inflation matched by the corresponding improvement in earnings will decline the benefit ration to the last pay lower than what was anticipated (Babatunde, 2012).

How to reduce or avoid the impacts of inflation on pension savings

The effects of inflation can be reduced or avoided when the interest rates are attractive by stacking the money in an account of money market or savings or rather invest certificates of deposit. From what is known, the stock market is one of the best areas to cub and avoids inflation (Hubbard, 1986). Allowed, when you invest in stock it shows one is taking many risks.

References

  • Babatunde, M. A. (2012). The Impact of Contributory Pension Scheme on Workers’ Savings in Nigeria. The Social Sciences7(3), 464-470.
  • Hubbard, R. G. (1986). Pension Wealth and Individual Saving: Some New Evidence. Journal of Money, Credit and Banking18(2), 167.

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