What does inflation mean for my retirement?

Pensions and retirement
Views & insights

Soaring inflation is unnerving, but there are several ways to keep your retirement plans on track. Here’s what to consider


25 May 2023 | 3 minute read

High inflation may have you wondering whether your retirement aspirations are still achievable. While it’s only natural to feel anxious about the impact of inflation on your long-term finances, there are several steps you could take to ensure your plans remain on track.


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A financial adviser is the best person to speak to for advice on your individual circumstances but, in the meantime, these are some of the main considerations.

Find out how inflation could affect you

The first step is to understand how inflation could affect your plans for the future. Like many people, you may have found that higher prices mean you have less money to put towards your pension and / or other investments each month. At the same time, inflation could have increased the overall amount you need to have saved up in your pension pots, as higher prices inevitably demand greater retirement income.

The only way to really understand the impact of inflation on your retirement plans is to speak to a financial adviser with expertise in cashflow modelling. They will be able to calculate the projected value of your pension at retirement and, based on your retirement income needs, show how long your money is likely to last.

Getting back on track

If it seems like you’re on course for a shortfall in your retirement savings, this is the time to consider ways to get your plans back on track.

It may be that a simple budgeting exercise reveals areas where you could cut back on your discretionary spending, enabling you to maintain or even increase how much you’re saving each month. Maintaining your personal pension contributions is especially valuable because you benefit from tax relief at your marginal rate of income tax, up until age 75. However, make sure you only contribute what you can really afford, as pension money is locked away until age 55 (rising to age 57 from April 2028).

Phasing or delaying retirement

Another option to consider is to delay your retirement by a few years, giving you more time to earn an income and save into your pension. Your pension pot will have the opportunity to grow over a longer period, potentially providing a greater income in retirement.

If the thought of keeping up the nine-to-five any longer fills you with dread, there are alternative options. Many retirees are now opting for a phased retirement, whereby instead of stopping work abruptly, they gradually reduce their hours by working part-time or on a consultancy basis.

If a phased retirement is a viable option for you, then it could be well worth considering. By working part-time or flexibly, you might be able to keep your pension fully invested and draw on other savings and investments to top up your lower income.

Consider your tax-free lump sum

Once you reach age 55, you are entitled to take a 25% tax-free lump sum from defined contribution pensions (capped at £268,275). But just because you can access this money, it doesn’t mean you necessarily should.

Withdrawing a large lump sum from your pension could significantly reduce how long your savings last in retirement. Even if you don’t spend it and instead leave it in a cash savings account, there’s a risk that its real value will decline as inflation erodes its purchasing power. Think about whether you really need the money and make sure you seek advice on what is right for you.

Don’t forget other income sources

Remember that income in retirement doesn’t have to come solely from pensions. First off, there is the state pension, which pays £203.85 per week for those who qualify for the full rate1. Check your state pension record and consider filling in gaps in your National Insurance record to increase your eligibility. Your state pension will provide a guaranteed income for life once you reach state pension age, which is currently 66.

ISAs are also a valuable source of retirement income. Although ISAs do not benefit from tax relief on contributions, you can withdraw money whenever you like without paying tax. Saving into ISAs may therefore be a good option if you’re concerned you might need access to the money before age 55. It could also prove more tax efficient to deplete ISAs before pensions in retirement.

Other income sources to consider include shares, bonds, property income and cash savings accounts, although make sure you keep at least six months’ worth of essential expenditure in an easy-access account as an emergency fund.

A financial adviser will be able to take a holistic look at all your savings and investments and advise on the most efficient way to access them in retirement.

Next steps

In uncertain times, taking some smart advice can help you make informed and rational decisions about your long-term finances. An adviser can help you understand what high inflation really means for you and explain how to make up a shortfall in your savings. You can focus on enjoying life today, safe in the knowledge that you’re doing the right thing with your money.

The value of investments, and any income from them, can fall and you may get back less than you invested. This does not constitute tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.


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