Inflation set to impact retirees’ spending power

Rising inflation is causing many people problems as incomes fail to increase at the same rate.

New research from retirement income specialist MCM Advantage has now revealed the true cost of inflation to those entering retirement in the coming years. 

Of the 400,000 people retiring each year who purchase an annuity, 90 per cent choose a level income.

Based on this, should inflation average three per cent over a 25-year retirement period, the real value of income would reduce by 53 per cent. This would collectively wipe £6.3 billion off retirees' purchasing power over that time frame. 

The research is based on people retiring this year with an average pension pot of £33,000 and choosing a level annuity with no escalation or index-linking.

Andrew Tully, pensions technical director at MGM Advantage, said: "These figures show just how damaging inflation can be, wreaking havoc with people's pensions and wiping thousands of pounds off their income over time.

"People close to retirement have some very tricky decisions to make when looking to convert savings into retirement income."

This loss of income has considerably more impact on those entering retirement lumbered with debt as they will naturally lose some of the money needed to pay it off.

For this reason it is important for individuals to plan ahead before their retirement to make sure they have enough income to support themselves.

One way of doing this would be to pay off any lingering debts and this can be done by using effective debt management.

By planning ahead, people can consolidate all their loans into one monthly payment, which can potentially make it easier to manage and reduce monthly outgoings. Naturally, reducing the amount of money chipped off each month will increase the time taken to pay it all off.

Retirement is becoming a lot more difficult than it used to be and many people are now continuing to work in order to make ends meet.

By Joe White