Inflation rise ‘hammer blow’ for retirees as £20.2bn gap created

The latest rise in inflation is a “hammer blow” for retirees and leaves UK households with an annual £20.2bn shortfall to maintain the standard of living, Retirement Advantage claims.

The latest data shows UK inflation grew by 2.7% in April 2017, up from 2.3% in March.

They estimate that each household will typically need to spend an extra £742 a year to maintain their standard of living compared to a year ago.

Andrew Tully, pensions technical director at the company said: “We are all feeling the pain from rising prices and stagnant wages, but this latest inflation increase really will be a hammer blow to households across the country.

The continuing rise of inflation is squeezing living standards can have a devastating impact on people living on fixed incomes, which typically includes retirees

Many don’t appreciate the true cost of inflation. For those who retired before 2010 and took out a fixed annuity, the cost can be staggering.

For partly this reason annuities are becoming much less popular with some of the larger Life Companies withdrawing from the market place such as Prudential, LV (Liverpool Victoria) & Aegon.

Rising prices will of course continue to trim the spending power of consumers, and demands a review of investment strategies, especially for retirees who are often living on a fixed income.

By far the best strategy seems to be allowing your ‘pot’ to grow in high quality multi-asset funds, beating inflationary rises and allowing you some flexibility. People’s expenditure is typically higher in the earlier years of retirement, tapering off towards the end of life as people’s lifestyle becomes more sedentary.

With bond yields remaining unattractive, retired savers may be tempted to increase equity exposure, but equity valuations look high in a number of major markets such as the UK and the USA. Staying diversified in well managed and proven multi-asset funds continues to prove to be the best strategy. Especially for expatriates in China.

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