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How to manage inflation during retirement

26th October 2022 Print

Inflation has been on a roller-coaster ride since February of this year, with Russia’s waging of war in Ukraine impacting both the supply and cost of energy and in-demand commodities such as oil.

In September, inflation returned to July’s 40-year high of 10.1%, after a brief dip to 9.9% in August as the cost of fuel temporarily reduced. This is an issue for all UK households and businesses, although some demographics are more affected than others.

These include retirees or those approaching retirement. But how can you manage inflation during the recession, and what impact does the rising cost of living have on retirees in the first place?

The Impact of Inflation on Retirees

Inflation describes the rising cost of goods such as food and oil, while the Bank of England (BoE) sets a target of reigning this into 2%.

In instances where inflation spirals beyond this target, the cost of goods and services typically rises at a disproportionate rate to earnings, ensuring that the purchasing power of the pound is gradually eroded.

This applies to both the amount that you spend and commit to savings, creating a debilitating economic scenario that can subsist in both the short and longer term.

For those approaching retirement, the issue is clear. More specifically, the money that they’ve saved towards their retirement won’t go as far as it otherwise would have done, exacerbating a potential shortfall that has existed for the last few years.

This may even encourage over-55s to stop paying into their pension altogether, instead preferring to use their cash to fund everyday living costs.

It’s also an issue for those who are younger, with one survey commission in April 2022 (by Wealth at Work) revealing that one-fifth (21%) of working 18-to-34-year-olds didn’t know the value of their pension while a further 24% had no idea how much money they’d need for a comfortable retirement.

How to Handle Inflation During Retirement

Now that you understand the impact of inflation on those approaching retirement, the next step is to take proactive and effective steps to tackle this. Here are some ideas to keep in mind:

#1. Consider the Importance of Borrowing: In some instances, you may find that you have very little money to sustain yourself in your retirement. This issue can be even more challenging if you don’t own your property or have particularly bad credit, as you have no tangible assets or ability to access cash easily. The good news is that bad credit loans can help in this respect, enabling you to access funds quickly and regardless of your financial circumstances.

#2. Maintain a Diversified Portfolio: If you do have saved pension funds and want to optimise their value, you may want to consider investing this into stocks, bonds and associated assets. The key here is to maintain a diversified portfolio, as this minimises your risk exposure and optimises the chances of you banking regular returns over time. You can also continue to diversify over time while responding to changes in the marketplace.

#3. Review Your Income Strategy: Finally, we’d also recommend that you create a carefully formulated strategy for your income. This involves budgeting to determine precisely how much you need to fund your daily living expenses while continuing to review this information over time. At the same time, you should identify viable income streams that can be sustained during your retirement, as you look to top up your state pension and create an agile strategy that suits the prevailing economic and market conditions.