Pension warning as you could wipe 11 years of income off your savings as inflation rises

Britons warned of damaging impact of rising inflation

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The Consumer Prices Index (CPI) rose to 9.1 percent in the year to May 2022, ONS figures published today show, putting further strain on pockets. With the cost of living and inflation hitting a 40-year high, new findings have issued a stark warning for retirement.

Research from wealth manager Netwealth demonstrated how an alarming 11 years of retirement savings could be lost.

This is a consequence of the combination of high inflation and money management costs.

Individuals retiring with a £750,000 pot, expecting a drawdown annually of £30,000 over the whole period, will see their pot last 37 years.

This will be the case factoring in a low cost arrangement of 0.65 percent, and two percent inflation.

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However, adding an extra one percent in fees, and one percent in inflation has a devastating effect.

It will mean a pension pot of this size lasts 26 years – a whole 11 years less.

The Netwealth study found less than two thirds of pre-retirees are now looking forward to their own retirement.

In addition, only half stated they feel financially prepared to leave the workforce.

Charlotte Ransom, CEO of Netwealth, said: “With life expectancy increasing, the need for thorough and flexible retirement planning is now more crucial than ever before. 

“Retirement is an exciting phase of life, marked by increased freedom and the ability to pursue our passions and take on new challenges.

“However, in order to achieve a happy, successful retirement, we must prepare ahead of time.”

Ms Ransom recommended Britons seek the expertise of a financial planner – one who is regulated to provide support.

Using these professionals, she said, can help Britons identify the steps they need to take to secure the retirement they are hoping for.

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In a similar way, individuals may also benefit from using a variety of online planning tools.

Ms Ransom states this can help bring one’s retirement plans to life as they begin to take shape.

Finally, a holistic approach to retirement is likely to be the best line of action to take.

The expert said this is an approach based and centred on a person’s goals and ambitions.

This is rather than the money they have amassed or the investment returns they are hoping to secure.

She concluded: “While inflation and the cost of living are at all-time highs, steps can be taken to safeguard savings and we can control some of the variables. 

“If you save in fees, you can offset partially, if not totally, the negative effect of inflation on your investments over time.”

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