Money Talks – cost of living crisis and retirement

With the cost of living on the rise, Iain Stevenson questions how this might impact your pension and plans to retire.

With all this talk about interest rate increases, highest inflation for over 40 years, the cost of living crisis, and continued uncertainty around the world economy, it’s time to step back and really understand some of the less obvious but significant issues this creates.

Let’s look at the impact on your retirement – not just your pension but your decision to retire. 

When we have discussions with our clients at Wesleyan Financial Services about what retirement looks like for them, we start with what they want to do in retirement. 

In some cases, it is what they want to ‘be’ in retirement.

Leaving dentistry, for many, does not mean kicking back and watching daytime television.

So, how does the cost-of-living crisis impact your retirement aspirations?

Mitigating the risk

The big hitter will be the impact on the purchasing power of your pension income.

Most day-to-day expenses will cost more money.

The income you’ve set aside won’t stretch as far as it would have done last year and you may have to compromise or make sacrifices.

In real terms, if inflation hits 10% this year, you need a 10% return on your investments and savings net of charges in order to stand still*.

Many people overlook the significance of the Consumer Price Index (CPI) figure, which is often the agreed measure of inflation.

A sharp increase in one year can have a dramatic effect on the overall calculation and could lead to annual allowance or lifetime allowance charges.

It can also affect the level on annuity (income) you can purchase from your personal pension plans. 

There are ways to mitigate the risks. 

Things will get better

Above all else, be proactive.

Burying your head in the sand when it comes to these issues may mean missed opportunities or being forced to make poor decisions at a later date. 

Take the time to step back and review your retirement arrangements properly with a qualified financial adviser who has extensive knowledge of not just the NHS Pension Scheme, but retirement planning in general. 

You should be asking them to walk through an excellent tool called a cash flow modeller in the first instance and then overlay these hard facts with your personal hopes, dreams and aspirations.

Things will get better, and the economy will continue to evolve but closing your eyes and waiting for this could cost you.

*Bear in mind that the value of investments can go down as well as up and you may get back less than you invest.


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