'Looking on in concern' Pension savers urged to act to mitigate inflation in retirement

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Inflation has soared to nine percent, data showed this week, with purchasing power falling for Britons. Many who are already in retirement are now facing a double hit of the rising cost of living, and a hit to income as asset prices are set to fall later this year. 

Bearing this in mind, those approaching retirement are likely to want to act to ensure they secure a comfortable retirement. 

Ed Monk, associate director of Personal Investing at Fidelity International, has shared key tips to help soon to be retirees.

Many will now be reassessing their retirement plans, both in the short and the long term.

The first tip is to help those who are still saving, with 15 years or more to go before retirement, offering these Britons wiggle room for their plans.

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Mr Monk explained: “Those with some time to go before they retire may be looking on in concern as the value of their pension move downwards but, in reality, they have the least to fear from inflation. 

“With time on their side, the price falls we’re seeing have time to potentially recover, while lower prices on shares and bonds now mean regular contributions can at least buy assets for less.

“Maintaining contributions into a properly diversified mix of assets, including those with the potential to keep pace with inflation – as part of the stock market has – should be the plan.”

However, those who are closer to retirement are likely to need to take a different approach – especially if they are five years or less away from leaving the workforce.

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Mr Monk has suggested these individuals will need to decide now exactly how they have planned to take their retirement income.

In an ideal world, these plans should allow people to cover the cost of essential spending, especially as the cost of living crisis kicks in.

This could mean using some or all of one’s pension pot to buy an annuity that offers protection against inflation.

Alternatively, Britons could choose to keep their money invested in drawdown, as there is potential here for investment growth.

Annuities have been less popular recently, but with rates rising, some people may be turning towards this option once again.

They also provide a guaranteed income, which many retirees will be looking for in the current turbulent times.

However, those who opt for this choice should be aware the value of income paid by annuities could fall in real terms, given the fact prices are currently rising.

Mr Monk said this can be mitigated by selecting an annuity which has an inflation-linked income, but this can come at a cost.

Those who choose to leave their money invested may be fearful about recent stock and bond market falls.

However, Mr Monk said: “Effective retirement planning should include building in a cash reserve that can be used to supply income in the short term, so that invested assets have the chance to recover losses over time.

“There’s no guarantee that will happen but the longer you can resist selling invested assets, the better chance you’ll have of being able to smooth out market ups and down.”

Those with existing pensions will need to manage these carefully, particularly given staggering rises in inflation.

Many arrangements, such as defined benefit schemes, will have valuable protections against erosive inflation, and it will be vital to not give these up.

These protections are even available in some defined contribution schemes, so it is worth checking. 



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