Cost of living crisis: What can retirees do about it?

Posted on: 20th June 2022 in Retirement Planning

The cost of living crisis almost everywhere in the world has affected hundreds of millions of people. Some economists suggest that inflation is spiralling out of control. The war between Russia and Ukraine has made energy prices soar whilst lockdowns in major Chinese cities have created a scarcity of various products. 

Those who are already retired or who are going to retire in the near future are the ones who are most at risk from rising inflation, according to investment managers and financial experts who spoke at the CNBC Financial Advisor Summit.

Inflation puts a strain on budgets

Because of inflation, one pound or dollar won’t get you as much in the way of food and other necessities for the home as it would around a year ago, on average.

In a robust economy, inflation of some kind is to be anticipated. However, the costs of consumer goods and services are currently increasing at a rate that is the quickest it has been in the past 40 years.

The frenetic pace that has prevailed over the past few months has reduced the purchasing power of households at a faster rate than is typical, which has proven to be particularly tough for those who are living on fixed incomes.

Employees get raises but not high enough

As long as you’re employed, you continue to receive your salary. However, businesses have been compelled to raise wages. 

According to the Office for National Statistics (ONS), inflation in the United Kingdom hit a 40-year high of 9% in April, which is an increase over the previous month’s rate of 7%.

According to the ONS, the rise in the Consumer Price Index represented the quickest recorded rate rise since official records first began being kept in 1989. Furthermore, the level reached was the highest since 1982.

Concerned that inflation may exceed 10% in 2022, the Bank of England boosted interest rates in May to a level not seen in the past 13 years, from 0.75% to 1%, marking a new high for the bank.

Economists at the Chartered Institute of Personnel and Development (CIPD) said that “every successive forecast to inflation seems to climb a little higher, increasing the gap between wage growth and price growth. For now, regular pay [excluding bonuses] is growing slower than prices are growing. Those who benefit from a bonus are more fortunate. Total pay [including bonuses] is beating inflation and grew by 7%.”

Inflation and your retirement income

In contrast, many retirees rely on income from investment plans and individual retirement accounts, for example) as well as regular payments from sources such as pensions, annuities, etc. and other benefits.

As a result of inflation and low-interest rates, retirees with large cash reserves are seeing the value of their bank accounts decrease faster than normal, which means they must spend more money to cover their regular expenditures.

Due to this dynamic, it is more difficult for retirees (especially new retirees) to fund their lifestyles on the basis of their investment portfolio without running the danger of a financial shortage down the road.

What should retirees do?

The situation might seem complex and difficult but there are options and solutions that can get you out of the labyrinth. Of course, if you feel that you don’t have the necessary knowledge to navigate the market and build the right plan, a fully qualified and experienced financial adviser would be able to help you make the right choices. 

Consider investing in property

The value of real estate typically rises with the passage of time. Investing in real estate is another smart approach to protect one’s purchasing power from the effects of inflation. Property investors that either have rental properties or they have buildings that they own, warehouse buildings enjoy a decent stream of income, provided that they are okay with dealing with some of the challenges that come with some real estate. 

Review your financial plan

Adjustments to your financial plan should be made when inflation rises. When planning how to use your retirement funds to pay your expenditures, it is vital to take into account the impact that inflation will have on the prices of necessities in the future. It is of utmost significance to take into account anticipated increases in the cost of essentials such as food and medical care.

If you have a comprehensive investment plan, it will be easier for you to ensure that your portfolio can keep up with rising expenditures and sustain you during your retirement.

Make strategic investments

Yes, the markets have been experiencing a downturn in the last few months. Inflation puts a strain on your budget. However, even when things look grim, there are opportunities that could deserve investors’ attention. Warren Buffet has said that he always reviews the fundamentals of a company before he proceeds with making an investment. 

Although stocks are not inherently a hedge against inflation, their performance over time typically exceeds that of inflation. By choosing the right stocks, perhaps you can reduce stress and uncertainty when inflation hits new record highs. 

Holborn has the right tools to help retirees

One of the best times of your life is retirement. However, if you don’t have a well-thought-out retirement strategy, things could get a lot more complicated. After 30 or 40 years of working every day, no one wants to worry about making ends meet. The time has come for you to do what you’ve always wanted to do with your spare time.

Preparing for retirement is the best way to reduce stress and anxiety. You can count on Holborn‘s experts to help you make the right decisions. Holborn has been helping expats from all over the world get ready for the next stage of their lives for more than two decades. Holborn has simplified and reduced the cost of financial advice. Get in touch with us today for a free personal financial review so that you can begin to build a long-term financial strategy.