1 in 4 people are delaying their retirement - what about you?
- Leanne Lancaster
- 23 September 2022
- 5 mins reading time
With inflation recently hitting a 40-year high, our finances are being squeezed as the cost of our food and fuel continue to rise.
As a result, one-quarter of UK consumers over the age of 55 who either can’t afford to retire (28.9%), orare unsure if they can afford to retire (43.8%) will have to delay their retirement by at least four years, according to our research.
Even during less volatile times, it’s natural to worry about running out of money while planning for retirement. The impact of inflation on price increases simply serves to strengthen these existing concerns. A robust retirement plan should give you some resilience but persistently high inflation could nudge you off track.
If you’re nearing retirement you may not have reflected on how the rapid surge in prices could affect your longer term financial plans. Our research found that two-thirds of people over the age of 55 don’t know (21.3%) or are unsure (42.9%) how much income they will need in retirement.
So what could you do to mitigate against the effects of inflation? Here are a few things you may want to consider when assessing the impact of inflation on your savings or pensions:
Do your sums – you may need a balance of savings and investments
It’s good practice to keep a certain amount of money in your savings account in case of emergencies or unexpected costs, but this isn’t always the best thing to do when inflation is high. Inflation effectively erodes the purchasing power of cash and so year-on-year money in a savings account would be able to buy less as time goes by.
If you have large amounts of cash which you’re not expected to need within the next five years, you could think about long-term investments to potentially reduce the chances of damaging its purchasing power. As a general rule of thumb, it is prudent to keep an ‘emergency fund’ of the amount you think you would need to live off for 6 months. If you have a significant amount of savings over and above this, you may want to consider investing some of it rather than keeping it in cash.
Do you know if inflation is impacting your finances?
Use our inflation healthcheck tool to find out.
During times of such economic uncertainty, it’s more important than ever to create a robust financial plan to help you mitigate any potential setbacks to your future finances. Simply answer a few short questions to discover if, and when, you could take action to protect your finances against inflation.
Make changes to your lifestyle
Sometimes the simplest actions are the most powerful, and this is certainly true when it comes to protecting yourself against the effects of inflation. Take time to review your monthly expenditure and decide what you could live without, perhaps temporarily, in order to reduce your spending. Whether it’s cutting out some luxuries, reviewing your subscriptions or choosing to shop in a cheaper supermarket, all the small adjustments add up to help you though a potentially difficult period.
Delay your retirement
If you’ve had your heart set on a date to put your feet up and enjoy the money you’ve saved hard for during your working life this may be a bitter pill to swallow.
Yet, the reality is that there could be clear benefits, for some, of delaying your retirement whilst inflation is so high. For one thing, you will have more time to save with the potential to create an even greater income for when you retire. You could also continue to receive tax relief on your pension contributions until the age of 75 – meaning your money goes further.
The additional time that you’ll be working means that you could also get more state pension. The current state pension age for men and women is 66, but by 2028 this will increase to 67. By continuing to work after this age you could defer payment meaning that you could potentially earn extra.
This could be beneficial as our research discovered that 30.4% of those over the age of 55 were concerned that they haven’t got enough money to retire.
If the thought of continuing to work full-time is too much to bear, you could choose to retire gradually. By working part-time you could still keep your pension fully invested. By making small withdrawals from your retirement funds as and when you need it, the remainder of your investments have the chance to grow and potentially recover any lost value.
Not only could working longer benefit your pension pot, but it could also have a positive effect on your health. As life expectancy is increasing and we are living healthier and more active lives, working in some form past retirement age could be good for your wellbeing too.
Speak to a financial adviser
If you haven’t already got a financial plan in place, now is a great time to speak to a professional for advice. If you do have a plan prepared, then by reviewing it with a financial adviser you could be assured that you’re invested in the most tax efficient way and that the funds you’re invested in are still appropriate during these inflationary times.
You may feel that financial advice isn’t right for you. You might be comfortable managing your own finances, but the truth is that inflation and the forces that drive it are complex economic concepts. It could be wise to get advice from people who truly understand the subject matter.
Source: Impact of inflation research, Schroders Personal Wealth (June 2022)
Important information
Fees and Charges apply at Schroders Personal Wealth.
The value of investments and the income from them can fall as well as rise and are not guaranteed. The investor might not get back their initial investment.
The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which isn't guaranteed and can do down as well as up. The benefits of your plan could fall below the amount(s) paid in.
Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
There is no guarantee by investing money it will keep level or beat inflation, particularly when inflation is high.
All information correct at the time of publishing.
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