Inflation and your retirement income

Several strategies to lessen its impact on retirees

The recent inflationary rises over the past few years could be a source of worry if you’re a retiree relying on your pension for income. It’s natural to question the resilience of your retirement income plan in the face of escalating prices and how it might influence your lifestyle and long-term aspirations.

Even with rates falling, mitigating the effects of inflation is still crucial for all savers and investors, but even more so
for retirees.

Understanding inflation’s impact
As a retiree, you may have a savings pool to sustain your current lifestyle and provide a financial legacy for future generations. But if climbing prices necessitate withdrawing more income than anticipated, your savings could be stretched thin. In the worst-case scenario, your savings could run out prematurely, requiring sacrifices to prevent financial depletion.

This might seem daunting, but now’s not the time for avoidance. Receiving professional financial advice and utilising cash flow modelling will provide a transparent view of how inflation may affect your savings and cash flow. With this knowledge, we can help you evaluate whether you need to modify your financial plans.

Maintaining a diversified portfolio
The prospect of further price increases might encourage you to hoard more cash for daily expenses. While having a cash safety net for emergencies or income gaps is vital, holding excess cash may not be prudent in a high-inflation environment. Despite a rise in some deposit account interest rates, they remain significantly lower than inflation rates. Hence, leaving surplus cash in a savings account could exacerbate the struggle with rising costs.

A diversified portfolio, investing across various asset classes such as stocks and bonds, is an effective way to insulate your pension from inflation’s harm. Your allocation to each asset class should reflect your individual needs and risk tolerance, which we can assist with. We’ll also ensure your portfolio’s resilience for long-term performance, regardless of broader economic trends.

Evaluating your income strategy
A thoughtful income strategy is another way to lessen inflation’s impact during retirement. This involves determining the income needed for your current needs and adjusting this over time as your circumstances evolve. It also includes knowing when and from which investments to generate income; this minimises the risk of realising losses or selling quality investments at unfavourable times.

We can help you understand which asset classes and sectors have the potential to grow in various economic conditions. Structuring your income could also boost tax savings, ensuring more of your money supports your lifestyle and goals. This is particularly crucial if rising costs increase your income and bump you into a higher tax bracket.

Taking the next step
Inflation’s effect on your retirement income may cause anxiety, but there are strategies to keep your plans on track. However, these steps can be intricate, making professional advice invaluable. We can help you comprehend what rising prices mean for you, where to invest in a high inflation environment and how to withdraw income sustainably and tax-efficiently. You can then focus on enjoying life today, confident that you have a robust plan in place.