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Don’t let high inflation stop you from saving for retirement

If you’ve been a bit reticent about saving for retirement because of high inflation, you’re not alone. If you want to fight inflation today, you can have the best retirement investments tailored to your needs. Signing up and creating a portfolio online with Moneyfarm is easy. But it’s understandable if poorly performing markets are still making you hesitant about investing. It’s a worldwide problem.

Why should I continue to save for retirement during high inflation?Continuing to save for retirement, even during high inflation, ensures that you’re building towards your future financial security
How does high inflation affect my retirement savings?High inflation can reduce the real value of your savings, meaning the actual purchasing power of the money you’ve saved decreases over time
What strategies can I use to protect my retirement savings from inflation?Diversify investments and consider inflation-resistant assets
Is investing or keeping my money in savings during high inflation better?The amount to save depends on your retirement goals, current financial situation, and risk tolerance. It’s advisable to consult with a financial advisor to tailor your saving strategy to your personal circumstances

According to nearly half of Americans stopped saving for retirement last year because of soaring inflation. Instead of contributing to their retirement nest egg, investors from across the pond are using the money to cope with higher grocery bills, higher utility costs and mortgage payments. The website sourced these findings from a U.S. News & World Report “Retirement and Inflation” survey, which was published at the beginning of this month.

Here in the UK, we’ve also seen people reduce their pension and ISA (Individual Savings Account) contributions so that the money could be used elsewhere – particularly to help with higher energy bills and mortgage payments.

Rising costs may also pressure you to consider doing this, while savings rates from cash accounts offered by banks may entice you while markets are down. But here are five reasons why you shouldn’t stop paying into your investment portfolio or pension if you can help it.

  1. The volatility won’t last forever

When stock markets are volatile, it’s understandable that you want to run for the safety of cash accounts. Days or even weeks of losses may tempt you to sell or reduce your payments. But days when stock markets suffer big losses are usually followed by recovery days, allowing the value of your investments to bounce back.

If you take your money out or stop contributing to your best retirement investments, you may lose out when markets recover. Few professionals can time market recovery successfully, so unless luck is on your side, it’s not possible for you to try and predict when market performance will turn for the better.  If possible, try and keep up your investment payments or reduce them if you’re struggling.

  1. You’ll lose out on the compounding effect

The best retirement investments all work with compound interest – one of the most powerful forces, which is why many refer to it as a ‘wonder of the world’. It enables you to maximise your returns and help you reach your goals more quickly. This is because it takes into account the principal amount as well as the interest accumulated previously. For more on how compound interest works and how you can take advantage of it, check out our ‘What is compound interest’ explainer.

  1. You’ll put your longer-term investment goals off course

2022 wasn’t a good year for markets, and investors saw some losses. But while it is normal to see some market volatility, if you’re investing for the long term then those losses will usually be evened out (or typically surpassed) by better performance in times of market recovery.

There are some good cash offerings out there. As central bank rates increased, cash savings accounts became more competitive. But if you save in these accounts instead of a stocks and shares ISA or your pension, for example, you’re more likely to not achieve your long-term investment goals.

We’ll never say cash is bad because it has its place for shorter-term needs and for times when you need to withdraw funds instantly. However, you typically lose out when you hold most of your savings in cash for too long.  You need to seek out the best retirement investments to ensure you can enjoy your retirement with relative financial certainty.

It’s easy to lose sight of your long-term goals in a negative market. But the key is to keep saving – even in the downturn so you can immediately benefit when markets are going back up. 

  1. You won’t benefit from bargains

You may despair when market values drop. But when prices are low it’s one of the best times to buy as you could take advantage of bargain prices. You may not want to invest a big chunk of money right now for fear of markets falling even lower, but there are benefits to investing a little bit of money (that you can afford) on a regular basis.  

Through Moneyfarm, you can drip-feed funds into an account. Adopting this strategy enables you to stagger your points of entry into the markets. It enables you to invest while times are tough and then immediately take advantage of the times when markets suddenly turn.

  1. You’ll lose payments from your employer and the government

If you’ve been automatically enrolled in a workplace pension your employer must pay into your pension pot. They are one of the best retirement investments, as in most cases, employers must pay at least 3% of your earnings alongside your own payments of 5% or more.

So, if you earn £30,000 and you pay 5% of your earnings a year (£1,500) into your pension, your employer would need to add in £900, which equates to 3% of your earnings. If you stop making payments into your pension or reduce them to less than 5% then your employer can also stop payments.

The government also gives you a contribution to your workplace or personal pension through tax benefits. If you stop your pension payments, you’ll also lose out on this benefit from the government.

What’s more, if you take a ‘holiday’ from contributing to your pension, you cannot get any of those ‘lost’ payments back. This could mean you’d need to work for longer to make up for the payments you didn’t make when times were tough.

Making the best retirement investments to protect your future

During tough times it’s understandable that you don’t want to pay into your stocks and shares investments or your pension, especially if markets aren’t performing. But if you don’t make regular contributions, you will lose financial boosts from your employer and the government. You could also lose out on any upswing – no one wants to buy in when markets have hit their peak.

Even if you can only make smaller contributions, it’s far better than stopping altogether and reducing your chances of a more comfortable lifestyle when you retire.


Can I adjust my retirement contributions during high inflation?

Yes, it’s advisable to periodically adjust your retirement contributions during high inflation to ensure that your savings keep pace with the rising cost of living and maintain their value over time.

Are there specific investments that are better during high inflation?

Yes, certain investments tend to fare better during periods of high inflation. These include tangible assets like real estate and commodities, as well as financial instruments such as stocks of companies with strong pricing power and Treasury Inflation-Protected Securities (TIPS), which are designed to increase in value with inflation.

How can I ensure my retirement savings keep up with inflation?

To ensure your retirement savings keep up with inflation, consider diversifying your investment portfolio across a range of assets that have historically outpaced inflation, adjusting your savings rate to account for higher costs of living, and staying informed about economic trends to make informed investment decisions.

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*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.