Living on a fixed income, such as a pension, during high inflation can be challenging. As costs rise, and your monthly income potentially remains the same, it may cause you to dip into your pension pot, depleting it faster than anticipated and impacting your retirement standard.
Whether your retirement income will last for the rest of your life and manage to combat inflation depends on a wide range of factors, including the size of your pot and what you choose to do with your retirement savings.
During such periods of economic uncertainty, it’s advisable to reassess your retirement plan and consider any necessary adjustments.
There are several strategies that retirees can employ to reduce the impact of inflation on their retirement income to help protect their pension income from the cost of living increases:
- Retire later: Delaying retirement can help you avoid periods of high inflation, protecting your pension investments from potential stock market volatility.
- Use Cash Individual Savings Accounts (ISAs) first: If you have other savings, like Cash ISAs, consider using them as a backup source of income before drawing on your pension. This strategy allows time for stock markets to recover and your invested retirement pot to grow.
- Withdraw less: Reducing your pension withdrawal amount might seem counterintuitive during a cost of living crisis, but it can help your pension grow in the long run. Keeping more of your pension invested could potentially allow it to grow at a similar rate to inflation.
- Stay invested, but understand where: It’s important not to panic and sell your investments during volatile market conditions. Instead, consider where your funds are invested and if any adjustments need to be made.
- Add to your pension: Volatile stock markets can present an opportunity to buy more assets at lower prices. Consider topping up your pension pot, but if you’ve already started drawing on your pension and you make additional contributions, these contributions may be subject to different tax treatment upon withdrawal.
NEED HELP TO UNDERSTAND WHAT RETIREMENT CHOICES YOU HAVE?
Every individual’s situation is different. It’s always essential to seek professional financial advice when considering changes to your retirement planning. For a conversation about tailor-made options that suit your requirements, don’t hesitate to contact us to learn more.
To discuss any of the issues raised in this article, please contact your adviser, or call us directly on 0161 819 1131. Further information can also be found at gov.uk.
Personal circumstances differ and not all of this information is applicable to every client and/or their business, this information is general in nature and should not be relied upon without seeking specific professional financial advice.
The Financial Conduct Authority (FCA) does not regulate tax advice, estate planning, trusts or will writing.
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