New research from the Joseph Rowntree Foundation has found that pensioners have been badly affected by rising living costs.
They found that living costs have risen by 25% during the past five years, placing an “unprecedented” financial burden on the poor, single people and pensioners.
This rising cost of living was largely due to higher prices for childcare and energy, with stagnant wages and benefits.
Despite the official Consumer Prices Index (CPI) measure of price inflation rising by 17% over the past five years, the 25% increase in the cost of living is judged to be the ‘real’ rate of price inflation since 2008.
During the past year, pensioners have faced a 4.2% rate of price inflation, compared to 2.4% for CPI.
Price inflation is a very important Financial Planning consideration for those entering retirement.
It is inevitable that the cost of living will continue to rise, and this can quickly have a harmful impact on living standards.
As demonstrated by the figures above, price inflation for the elderly is consistently higher than inflation for the working population, due to the nature of goods and services they typically consume.
Just like interest or investment returns, inflation is compounded year on year, which is why it can be so damaging to living standards.
If price inflation runs at 4% per annum, it takes only 17 years for the buying power of your income to be cut in half.
When planning your retirement and choosing the most suitable retirement income option (whether that might be an annuity, unsecured pension or something else), understanding and taking account of inflation is crucial.
Do give us a call on 01483 274566, email us at hello@icl-ifa.co.uk or complete our online contact form to find out more about how we can help you plan for a financially comfortable retirement and make the most of your accumulated pension assets in later life.
