What will rising inflation rates mean for retirement finances?

18 February 2022 Reading Time: 4 minutes

As inflation soars, pension savers and retirees must consider how this affects their retirement finances.

This week, it was announced that inflation rose to 5.5% in January, reaching its highest rates in 30 years. Additionally, the Bank of England predicts further price growth, surpassing 7% by the Spring. This hike will impact the personal finances of Britons across the country with spikes in prices in energy, fuel, and food – and unfortunately, pensions are not immune.

Of course, the immediate impact of inflation is cause for concern. However, one should not overlook the potential threat it can pose to individuals’ retirement strategies. Indeed, a recent survey amongst 550 affluent Britons, commissioned by My Pension Expert, revealed that half (50%) of respondents believe inflation is the biggest threat to their retirement plans.

Therefore, it is vital that individuals understand exactly what inflation might mean for their retirement strategy and, more importantly, how they can ensure they can still obtain the financially secure retirement they deserve.

Understanding the impact of inflation

Understandably, the main concern amongst pension planners is whether their hard-saved pension will hold its value against inflation in the long term, with many focusing on the final figure they will need in their pension pot to retire comfortably. However, an essential aspect of retirement planning is considering what you can buy with it; does it cover the cost of one’s retirement lifestyle? And while month-to-month price increases may not be obvious, continuous inflation over time will decrease the value of pensions pots as retirement income will not stretch as far. Meanwhile, savings and investments can also take a hit if growth does not match the increase in inflation.

These factors leave pensioners particularly vulnerable to the stresses of inflation. For example, according to Age UK, over half (52%) of over-65s are worried about rising energy bills compared to just 31% last month.

Such concern is prompting individuals to explore alternative routes to retirement to help their money retain its long-term value. For example, My Pension Expert’s aforementioned research found that over a third (34%) of wealthier pension planners had moved their money into investments to counteract the combined impact of inflation and low-interest rates.

Of course, exploring investment options could be a useful move when it comes to making one’s money work harder when faced with economic uncertainty. However, what is worrying is that people seem to be making major financial decisions without the help of qualified financial advisers – just 32% of wealthy pension planners have sought independent financial advice regarding their pension.

Such figures suggest that the pressures imposed by inflation are driving people to make rash, potentially ill-informed decisions regarding their retirement strategy. And this could jeopardise their long-term financial health.

However, individuals should not feel they must muddle through alone – help is on hand in the form of independent financial advice.

Seeking advice

Independent financial advisers – like our qualified team at My Pension Expert – are always on hand to help individuals review their retirement strategy and make adjustments in accordance with the current economic situation.

Indeed, they take into account a client’s current financial situation, future goals, as well as their risk appetite and make the appropriate recommendations to ensure their money is working as hard as possible, in a way that suits their specific needs. So, savers can remain on track to a financially secure retirement, despite inflation.

Continuous increases in inflation have the potential to create an incredibly stressful situation for savers – particularly if they are more vulnerable to the rising cost of living. However, with access to practical financial advice, savers will be able to mitigate the effects of inflation to achieve their desired retirement outcome.


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