Financial planning / Pensions

What impact will high inflation have on your retirement?

It’s likely that you’ve been planning your retirement for many years. This period of life is likely to be one you’ve looked forward to, safe in the knowledge that the pensions and investments you’ve carefully grown can be realised, bringing financial freedom. But with inflation causing prices to rise at record rates, it can be unclear about how your retirement might be affected. Huw Wedlock, Financial Planner and Director of our Singapore team, explores what you need to take account of when considering high inflation and your retirement plans.

Many of us look towards retirement with a sense of excitement – especially if we’ve spent time saving so the pressures of work can be left behind.

Yet in the past few months there’s a fear that record inflation could impact plans and affect the lifestyle you’re looking to enjoy through retirement. And you might feel inflation might present more of an issue if you are close to retirement, when there is less time to adjust your plans. If you have already retired and are reliant on your income from pensions and investments, you might also be concerned that high inflation and the increases in the cost of living will take their toll.

What can you do?

Inflation has been fairly stable for some time, but in the last 12 months there have been some significant hikes. Inflation can be managed as part of your retirement plans as long as you make some short-term allowances. Inflation reduces your spending power over time, and during spikes, such as we’re seeing at the moment, it can feel like your hard-earned retirement pot will be quickly eaten up unless you boost it significantly. Keep some perspective, and remember that the government’s aim is to bring inflation back towards its 2% goal. There could be other benefits too – interest rates tend to rise during inflationary periods, so you might enjoy a better return on other savings and investments.
UK Inflation and Interest Rates since 2009Historically inflation has remained fairly low, running at an average of 3.8% a year over the past century. So as long as you’ve factored a sensible inflation rate into your retirement plans, you’ve done as much as you can, and it’s simply a case of riding things out.

The power of investments

Inflation can also help you better focus your plans. Returns on cash generally don’t keep pace with inflation, illustrating the importance of a diversified investment portfolio which incorporates other options, such as equities. This can help protect against inflation over the long term. It’s also important to continue to review your investments beyond retirement so that they continue to perform well. This will help ensure that your standard of living can keep pace with current prices.

Inflation and retirement income

Inflation is only an issue if you have a lack of investment growth. However, a good retirement plan, which takes into account everything you want your lifestyle in retirement to look like, is a good place to start. Working with a financial adviser will ensure you run through how much you’ll need to cover typical monthly expenses, along with other important activities such as travel, holidays, socialising, and any other items including financial gifts for children or grandchildren.

Of course, how you plan to live during your retirement will influence that final figure which you need to build into your retirement pot. And as long as you have taken account of inflation in these calculations, and regularly review your plans, you can feel rest assured that you have a robust retirement strategy in place.

To discuss any aspect of your retirement plans and securing financial freedom in your future please contact you nearest office.