Retire: Inflation, interest rates and fees

Carina Jooste Latest, Retire

Inflation, interest rates, and fees will all affect your quality of life in retirement, whether your financial plan consists of discretionary savings, a tax-free savings account, marrying into a wealthy family, investing in retirement products, or a healthy combination of all. The effect of these forces on your retirement savings become even more pronounced in retirement. While your retirement savings plan can be adapted as you save, once you make your choices about where your pension should go in retirement, changes become harder to implement.


Ensure that your savings vehicle of choice keeps up with inflation, and not the Joneses. Retirement is a long-term play, sometimes thirty years or more. Just think how much more money could buy thirty years ago. If your portfolio isn’t keeping pace with inflation, you’re getting poorer. The true return of your portfolio is your return, less fees and inflation. This is tricky, because fees are deducted while the cost of inflation is invisible. The money remains in your account, but it can buy you far less than it did the previous year. 

Should you choose a guaranteed annuity in retirement, be sure to buy one that increases by inflation every year. This might mean that you’ll start off with less money every month going into retirement, but in the long haul you want your income to increase annually.

Interest rates

Have you ever considered what happens when interest rates join the retirement party? When interest rates go down, homeowners, financed vehicle owners and debt holders’ spirits go up. However, retirees generally have more conservative portfolios (think more cash and other shorter-term assets), so a portion of their income is lost to lower interest rates. Definitely not something worth celebrating. Having your eggs in different baskets makes heaps of financial sense, no matter the context. If interest rates are low, tapping into discretionary savings to cover your expenses can help to safeguard your investments.

Taking on a guaranteed annuity in a low interest rate environment is also problematic. The rates retirees receive on guaranteed annuities are linked to the prevailing interest rate when they take out guaranteed annuities. If at all possible, try to convert your pension into a guaranteed annuity only once interest rates start recovering.


It’s a drum we bang on all the time, but fees are worth making a noise about. Every 1% you save on fees from the start of your retirement savings journey can increase your final retirement savings by approximately 30%. Administration fees, financial advisor fees, and paying for outperformance all adds up. Read the fine print and understand what you’re paying for (and what you should reevaluate) with our Glossary of Fees blog post.

Retire blog

Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, we try to answer some of the retirement questions we hear most often, ranging from which products are best suited to different circumstances to efficient tax treatments. Words by Carina Jooste.

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