Rising inflation and money management – the way ahead for pensioners

India’s retail inflation had skyrocketed for the seventh consecutive month to an eight-year high of 7.79 (CPI) percent in April 2021, government data showed. Wholesale price inflation, which has been in double digits for thirteen months in a row, surged to a record high of 15.1 per cent in April. While a sizable chunk of the population has been feeling the pinch for a few months now, the global supply issues in food and fuel triggered by the geopolitical crisis of the Russian invasion of Ukraine, the heatwave in India that led to a spike in the prices of perishables and the scars left from COVID have accelerated the rise of inflation rates to record highs.On May 21, Union Finance Minsiter Nirmala Sitharaman announced a slew of measures to slay the inflation monster which included reducing central duties on petrol by ₹8 a litre and diesel by ₹6, giving ₹200 per cylinder cooking gas subsidy to 90 million poor households. The move is expected to cool off inflation in the coming months but the added strain on the common man’s pockets may take some time to ease off. Among those groups who are bearing the brunt of inflation harder than others are pensioners and retired citizens. This comes at a time when may have been already battling financial issues following the spell of troubles unleashed by the COVID-19 pandemic.According to a study of elderly persons conducted by Agewell Foundation, 75.1 per cent of the respondents said they were not optimistic about the future or were uncertain about the future and 28.3 percent of those terming financial issues as the most critical. Loss of family income, loss of business or professional income, mounting medical expenses and high inflation were cited as the most common reasons.Shekhar Chakraborty, a 70-year-old resident of Kolkata corroborates the survey findings: “I have felt a noticeable drop in the quality of my life in the last two years. While I am not facing a financial nightmare, I have had to tighten my purse considerably. Contracting COVID worsened my financial situation because medical expenses mounted significantly as I had to be hospitalized. Galloping inflation added fuel to fire and as a pensioner things have been rough.”In India, elderly people depending on their children and close relatives for their financial needs without a solid safety net is a common pattern. Low financial literacy levels coupled with the norms entrenched by the Indian joint family system wherein adult children stay with their parents and take care of them in their advancing years kept many elderly people from making efforts to save and invest diligently in their younger years. Many rely solely on pension incomes in their old age and when inflation rates climb they find their financial positions being compromised.Those who did follow a diligent saving and investing routine in their younger years are also finding themselves in a tight spot. This is due to the penchant for investing in asset classes that carry negligible risks – while these instruments deliver assured returns, their potency gets diluted when high inflation rates come into the picture. Chakraborty says, “As majority of the people of my generation, my investments were limited to fixed income, real estate and gold. I hardly ventured into the world of stocks or any investment that carried an element of risk because the fear of losing out money by investing in those was too deeply entrenched when I was younger. I am fortunate enough to have built a sizable reservoir of funds for my retirement but the rate at which inflation is marching has made me realise that post-tax returns from fixed income instruments are very pale. Gold jewellery and real-estate are there in the kitty but the liquidity constraints make them of little use in the day-to-day lives of pensioners like us.”Preeti Zende, co-founder of Apna Dhan Financial Services says, “Be it our incomes from pensions or investments – inflation can eat it up. The current scenario looks bleaker because of the increasing crude prices due to the Russia-Ukraine crisis which has surmounted inflationary pressures on all commodities. The situation is more painful for pensioners who have to manage their spending with pension and investment income. To make sure that your investments do not get eroded at a faster rate due to high inflation you have to invest some part of your portfolio in inflation hedging investments.”Zende explains further, “Equity and gold asset classes are considered better bets for beating inflation in the long terms. So, at least 20% of your current portfolio should be invested in hybrid equity funds, Nifty Index funds as well as good quality Flexicap funds. You can have 5 to 10% exposure in Gold through Gold funds or Sovereign Gold bonds – the latter is better as it offers additional 2.5% interest income as well tax free return if held till maturity. You can also invest some portions in postal and Bank FD in this rising interest rate scenario as well and if you are in the higher tax bracket you can use Arbitrage funds. Liquid and ultra short debt funds are good for short term needs. Also, you should have nominations added in all your investments and financial products and keep a solid will ready so that your assets can be passed on to your heirs or family members smoothly when the time comes.”Key takeaways- Amp up your health and term insurance game and review them from time to time so that you are covered for medical emergencies and don’t have to weaken your financial safety net for those days.- Keep your children or a trusted family member privy to your finances so that they can help you access your money during emergencies.- To make sure that your investments do not erode at a faster rate due to high inflation you have to invest some part of your portfolio in inflation hedging investments.- Equity and gold asset classes are considered better bets for beating inflation in the long terms.- Writing a will that can stand the test of time and ensuring that you have added nominations in your investments and other financial products should be a priority in your post-retirement years.This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.