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Retirement income & Inflation

My father retired in 1974 on an adequate pension (from memory it was about £2,500pa). However by 1984 he really struggled to survive on the same amount.

This really worries me, how best do I plan for the effect that inflation will have on my pension during my retirement?


Any thought would be appreciated.

Comments

  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    Make sure you will be in receipt of the largest state pensions you can achieve -they are index-linked for inflation.Also check index linking guarantees on any company pensions you may be due.

    Consider in the early years of retirement doing "income drawdown" with a portion of your retirement funds, rather than an annuity.This involves leaving your fund invested while drawing an income from it. It offers the prospect of growth so that if you do eventually get an annuity your fund will be larger and your income higher. Of course there are risks that the reverse might happen: it's helpful to learn a bit about investment before you retire.

    Consider investing in assets which will offer capital and income growth to beat inflation - shares which pay higher dividend income, letting property, whether residential or commercial.

    Oh, and save more than you think you will need.
    Trying to keep it simple...;)
  • dunstonh
    dunstonh Posts: 118,599 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    when you get to retirement, you can choose how you want the income paid. A number of the options can include index linking of income. Ed suggests looking at a higher risk investment option which does have merits but also has risk. There are other options as well.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • dnwilliams wrote: »
    This really worries me, how best do I plan for the effect that inflation will have on my pension during my retirement?

    What kind of pensions do you currently have?
    Warning ..... I'm a peri-menopausal axe-wielding maniac ;)
  • purch
    purch Posts: 9,865 Forumite
    how best do I plan for the effect that inflation will have on my pension during my retirement?

    In the period before retirement build up the biggest 'pot' you can....

    Your options after retirement are limited
    'In nature, there are neither rewards nor punishments - there are Consequences.'
  • What kind of pensions do you currently have?

    I have had personal pension plan for the last 20 years but only pay £50 per month. For the last 3 years my company has contributed about £500 a month into a pension scheme and I try where I can to top this up. I also opened an ISA last year and plan to take advantage of the maximum savings each year until I hope to retire in about 10 years time. Finally I have a couple of dormant pensions gathered through previous jobs which are only worth about £1,500 each.

    Also confused about state pension. I contracted out of serps about 15 years ago and recently was advised to contract back in. Does this mean I will still get a pension from the state??
  • dnwilliams wrote: »
    Also confused about state pension. I contracted out of serps about 15 years ago and recently was advised to contract back in. Does this mean I will still get a pension from the state??

    You still get the basic state pension. You'll also get SERPS for the years when you were not contracted out. Both of these are inflation proofed.
    I have had personal pension plan for the last 20 years but only pay £50 per month.


    Assuming you buy an annuity from that pension pot, you will have the option to buy one that increases each year. It starts off lower, but increases are added annually. At the moment, you can't buy annuities that are 100% infation-proofed, but can go some way to achieving that.

    For the last 3 years my company has contributed about £500 a month into a pension scheme and I try where I can to top this up.


    Probably another money purchase pot, so - again - you would need to buy an increasing annuity when you retire.

    Finally I have a couple of dormant pensions gathered through previous jobs which are only worth about £1,500 each.


    If these are from defined benefit or final salary schemes, the pensions will increase each year - again, partially inflation proofed.

    HTH
    Warning ..... I'm a peri-menopausal axe-wielding maniac ;)
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