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When is the right time to retire?

High inflation and retirement income: Eight questions to ask yourself

For the first time in generations, many people may now need to think about the impact that inflation could have on their retirement income, and to consider whether they can afford to retire yet.

Inflation in the UK has climbed above 7% and looks set to remain there for the foreseeable future. Various factors will influence how long inflation is with us, but a long-drawn-out Russia/Ukraine conflict would be unlikely to help. How can we invest to get maximum pension returns despite persistent inflation?

Here, our investment managers set out eight key questions to ask yourself if you are approaching retirement and want to ensure your portfolios are positioned as well as possible.

1. What impact could inflation have on your retirement plans?

On average, a 65-year-old man retiring today is expected to live for a further 19 years, while a 65-year-old woman retiring today would be expected to live for 22 years. For those on a fixed retirement income, high inflation can be very damaging. This helps illustrate why: assuming inflation averages 5% per annum for 22 years and you have an annual fixed retirement income of £50,000, the effect would be to reduce this figure to marginally over £17,000 per annum.

Chart illustrating a retirement cash flow analysis example

This means that ensuring retirement income keeps pace with inflation, or preferably grows in ‘real’ terms (i.e. factoring out the effect of inflation), is of utmost importance.

2. What is your retirement timeline?

As wealth planners with many years of experience, we know that many people do not start considering whether they have sufficient funds to retire until around 18 months before they plan to stop work. That's human nature.

However, we believe that ideally, everyone should have a proper plan in place well before their desired retirement date, and that it's imperative to have a full understanding of their financial situation. This is the only way to identify future problems and, hopefully, rectify them.

The good news is that it’s never too late for us to help you optimise your retirement financial planning, no matter how long you may have left it.

3. Could retirement cash flow modelling help you?

At Canaccord Genuity Wealth Management, we believe retirement cash flow modelling tools can be very useful in making these assessments. They enable us to consider all your potential sources of income in retirement and how they can best be used to satisfy your expenditure needs. We will consider a number of factors such as your underlying investments, tax and, most importantly, how well your different income streams are protected against inflation. 

Another benefit of using cash flow planning tools is that we can easily change those assumptions if your circumstances change; factoring in different investment returns, tax rates and inflation. This allows us to help you assess how much you need to have accumulated prior to retirement. 

4. Would an annuity be beneficial?

A dwindling number of people have the luxury of a final salary pension – i.e., a guaranteed income from a pension that is fully indexed to keep pace with the rate of inflation – as they are now rarely offered by employers. We will always consider annuities (financial products that provide a guaranteed annual income for life) as an option, but they are likely to be unsuitable in most cases. This is because annuity rates have fallen over a similar period to that of inflation, partly due to drops in interest rates but also because we are collectively living longer. As a result, purchasing a lifetime annuity with a pension lump sum is not typically an attractive proposition.

However, there are two circumstances where annuities may be well worth considering. First, those who have no capacity for their income to fall in the future may have little choice but to purchase an annuity. Secondly, for those who are in less robust health, annuities may also be beneficial, as the rates paid out to policyholders may be high enough to warrant purchasing them.

5. Are you sitting on too much cash?

One of the best ways to protect against inflation in retirement is by investing in ‘real assets’ – i.e., any investment other than cash. Holding wealth in cash is typically not such a good idea during periods of high inflation because its value is eroded in real terms. With interest rates currently still comfortably below 1% and inflation high at 7% and increasing, the real value of cash is guaranteed to fall. 

6. What is your attitude to risk?

A key factor in investment decisions is establishing the level of risk that is acceptable to each individual investor, as this differs widely from one person to another. One of our expert wealth planners will spend time with you understanding your concerns and helping you to assess the most appropriate risk level.

Our investment managers can then manage your discretionary portfolios, whether in pensions, ISAs or general accounts, to match your risk appetite. This will generally mean a different asset allocation between equities, bonds, property and other alternatives, with a view to ensuring that the income derived from that portfolio can at least keep pace with inflation. 

7. Do you need to consider potential liability for inheritance tax (IHT)?

With inflation rates increasing, you may be worried about giving away assets to reduce the impact of inheritance tax on your estate. With inflation eating into the value of your assets, you may be concerned about striking the right balance between leaving yourself enough to live comfortably on, and giving away enough to avoid incurring IHT. In this situation, the use of cash flow modelling can again be a useful way to identify a comfortable level of assets that can be given away. 

We can also assess the impact of IHT on your different funds.

8. Could your home be a retirement asset?

Property values in the UK have in general risen above inflation over the last 30 years. However, many clients heading towards retirement realise that while their main residence may be one of their most valuable assets, it provides them with no income. Some may look to downsize in order to free up additional funds to assist them in retirement. However, those who do not wish to move from their family home may consider a lifetime mortgage to assist with future cash flow. 

Get expert advice on retiring in inflationary times

With inflation raising its head for the first time in many years, wealth planners and investors are having to grapple with some new challenges. There is no ‘one solution’ to solve these problems, but forward planning and expert advice are imperative for a comfortable retirement in an inflationary world.

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The tax treatment of all investments depends upon individual circumstances and the levels and basis of taxation may change in the future. Investors should discuss their financial arrangements with their own tax adviser before investing.

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

This is not a recommendation to invest or disinvest in any of the companies, themes or sectors mentioned. They are included for illustrative purposes only.

The information contained herein is based on materials and sources deemed to be reliable; however, Canaccord Genuity Wealth Management makes no representation or warranty, either express or implied, to the accuracy, completeness or reliability of this information. Canaccord is not liable for the content and accuracy of the opinions and information provided by external contributors. All stated opinions and estimates in this article are subject to change without notice and Canaccord Genuity Wealth Management is under no obligation to update the information.

Photo of Matt Phillips

Matt Phillips

Director of Wealth Planning


020 7523 4596

Investment involves risk and you may not get back what you invest. It’s not suitable for everyone.

Investment involves risk and is not suitable for everyone.