How to weather inflation in retirement

For the first time, it now costs £100 (on average) to fill up a car. Petrol prices have soared as oil prices have surged across the world – partly due to sanctions on Russia, a major global oil producer, over its invasion of Ukraine. Yet inflation, as a whole, has also been rising for some time. The overall cost of goods and services in the UK has now risen 9% in the 12 months prior to June 2022; the highest since the 1980s. This presents challenges to working households, of course. Yet what about those in retirement? 

Below, our financial planning team at WMM here in Oxfordshire offers some ideas to help pensioners (and those near retirement) to protect their savings and income.


Be wary of raising spending

With living costs going up, it is natural to want to meet the increase in your expenditure via higher levels of withdrawals from your pension. Yet this could result in your fund shrinking disproportionately. In the worst case, it could lead you to run out of money later in retirement. If you need to spend more on your essentials then perhaps you have other investments that could be used to provide a more efficient income stream. However, take care to not hold too much in cash, as inflation will erode the value very quickly.  


Consider working longer

Unfortunately, not everyone is in the position to draw upon multiple income streams to provide extra retirement spending. For some, it may be best to delay retirement for a few years – letting you build up more qualifying years on your National Insurance (NI) record so you can get more State Pension income. You need 35 “complete” years on your record to get the full new State Pension. Remember, the income rises each year by at least 2.5% under the “triple lock” system and usually follows/beats inflation – protecting its value. Working longer could also give you more time to contribute to your pension pot.


Remain true to your strategy

When inflation rises, it eats away at the “real returns” from your investments. For instance, if your overall return for one year is 7% but inflation is 5%, then the purchasing power of your portfolio has only grown by 2%. With inflation at 9% in 2022, many investors are tempted to take on more investment risk to try and keep up. Yet this is not always appropriate with an investor’s time horizon, personal risk tolerance and long-term strategy. 

This is not to say that you should sell your investments! However, those in/near retirement should be wary of changing the investment plan agreed with their financial planner simply to account for the present economic landscape. Although inflation is high right now, it could return to “normal” levels (2%, or close to it) in the coming years. Taking on more risk than you are comfortable with is likely to lead to costly mistakes later (e.g. “panic-selling” if the markets fall suddenly). If you are at all concerned about your investment strategy in light of the current 9% inflation rate, speak to your financial planner. They will hear your concerns and perhaps draw attention to important information or principles that you may have missed. 



Interested in finding out how we can optimise your financial plan and investment strategy? Get in touch today to arrange a free, no-commitment consultation with a member of our team here at WMM. 

You can call us on 01869 331469 

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us here at WMM (financial planning in Oxfordshire).