As the rate of inflation continues to rise, it’s more important than ever that those approaching retirement consider how the rising cost of living could affect them. For some people, delaying or changing plans could mean they have greater financial security later in life.

According to Aegon, maintaining living standards is the top retirement aspiration among people receiving financial advice. 

In the 12 months to June 2022, prices increased by 9.4%. As day-to-day costs rise at a quicker pace than normal, it can make it much more difficult for retirees to secure the income they need to maintain their lifestyle.

If you’re nearing the milestone, you may have concerns about how far your retirement savings will go and be considering making changes to your plans.

Delaying retirement by just a year could “substantially” boost your retirement income

The effect of delaying your retirement will depend on your circumstances. However, further Aegon research suggests it could “substantially” boost the income you can sustainably take in retirement.

It found that an employee aged 60 with a pension of £200,000 might secure an income of £4,900 a year if they purchased an annuity with a rate of 2.45%. The annuity rate you’re offered can depend on a variety of things, from your health to wider economic circumstances.

However, this could increase this by:

• £800 a year, a 16% uplift, by delaying retirement for a year and making monthly pension contributions of £200
• £3,600 a year, a 73% uplift, by delaying retirement for five years if regular pension contributions continue.

The above figures assume an investment return of 4.25%, which cannot be guaranteed.

Delaying your retirement can help your savings go further for several reasons. It means you have an opportunity to contribute more to your pension and that your savings won’t need to last as long.

While you can access your pension from age 55, rising to 57 in 2028, you will have to wait longer to claim the State Pension. The State Pension Age is currently 67 and slowly rising.

You may decide to retire before this milestone but will need to take a larger income from other sources to bridge the gap until you reach State Pension Age. Instead, delaying retirement for a few years will shorten the period where you might need to draw on other sources.

Steven Cameron, pension director at Aegon, said: “Not only can employment offer a sense of purpose, but the financial benefits extend beyond maintaining your current income to increasing your future retirement income as well.

“This is due to the triple boost to your pension from continued investment returns on your pension pot, further pension contributions from you and your employer, and fewer years to spread the fund over once retired. Every year retirement is deferred can make a difference to the level of pension income you receive.”

While you pension has the potential to grow further as it’s invested, it can also be affected by market volatility and the value could fall.

Inflation doesn’t have to mean delaying your retirement plans

Before you make any decisions about changing your existing retirement plans, you should review your finances.

You may find that, despite concerns, you have enough saved in your pension or other assets to retire as planned and have a secure financial future. Even if inflation could affect your retirement plans, you may decide that a lower income throughout retirement is preferable to working for longer.

What’s important is that you set out your priorities and review your plan with these in mind.

A thorough pension review can help you understand what income your savings will deliver throughout your retirement. You may also want to consider how other assets, like an investment or property portfolio, can be used to support your retirement aspirations.

There are also steps you can take to reduce the effect of inflation on your income and wealth.

For instance, choosing an annuity, which delivers an income for the rest of your life, and that’s linked to inflation can maintain your spending power throughout retirement. This can help you maintain your standard of living and mean you’re financially secure later in life.

If you want to purchase an annuity, you should understand how the rate will affect the income you receive and note it may vary between providers. If you have any questions about annuities, please contact us.

Alternatively, keeping a portion of your pension or other assets invested can provide an opportunity for your wealth to grow. Historically, investment markets have delivered returns above inflation, but there have been periods of volatility and returns cannot be guaranteed. It’s vital that you choose investments that are right for your risk profile and goals.

Do you have further questions about inflation and your retirement plan?

We’re here to help you retire with confidence, whether you’re ready to stop working now or want to understand what your options are for the future. Please contact us to arrange a meeting with one of our team.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.