Rising prices add almost 20% to the ‘Minimum’ cost of retirement

We recently heard that from the Office for National Statistics, that Consumer Price Inflation rate fell slightly to 8.9% in March. Whilst this was a relief, after an unexpected rise the previous month, it is still some way from what the Government or the Bank of England had hoped for. Despite, the raising of interest rates, which will work in the medium term, it is still the soaring cost of everyday goods and services, primarily food and drink which are creating the upward pressure. In fact, the prices of food and non-alcoholic drinks shot up by 19.1% in March alone.

As financial planners we are obviously in constant touch with our clients, and indeed our mutual clients, in these worrying times, but it is those considering retirement and actual retirees perhaps where our advice is most required. Quite evidently, it is when retirement income may not increase, or one needs to deplete assets more quickly, that anxiety and concerns about facing more uncertainly in later life will increase.

In January of this year, a well-respected, policy driving body, the Pensions and Lifetime Savings Association (PLSA) updated its annual ‘Retirement Living Standards’ to reflect these unprecedented recent times. Quite alarmingly they discovered that some retirees would need to augment their budget by as much as 19% to maintain the same standard of living they had enjoyed at the beginning of 2022.

The PLSA, in their annual Retirement Living Standards take into account and review not only the public’s expectations of what retired households need but also the changing prices of the goods on the shelves and the services most used by the retired sector in society. Not surprisingly, the organisation noted that it was those who had retired with a lower income most harshly impacted die to the proportion of their budget that was having to go towards food and energy where the inflation has been at its highest.

The following graphic illustrates the 2023 report from the PLSA and introduces their concept, which we as financial planners find a very useful guide when assisting our clients plan for their retirement:

We recently heard that from the Office for National Statistics, that Consumer Price Inflation rate fell slightly to 8.9% in March. Whilst this was a relief, after an unexpected rise the previous month, it is still some way from what the Government or the Bank of England had hoped for. Despite, the raising of interest rates, which will work in the medium term, it is still the soaring cost of everyday goods and services, primarily food and drink which are creating the upward pressure. In fact, the prices of food and non-alcoholic drinks shot up by 19.1% in March alone.

As financial planners we are obviously in constant touch with our clients, and indeed our mutual clients, in these worrying times, but it is those considering retirement and actual retirees perhaps where our advice is most required. Quite evidently, it is when retirement income may not increase, or one needs to deplete assets more quickly, that anxiety and concerns about facing more uncertainly in later life will increase.

In January of this year, a well-respected, policy driving body, the Pensions and Lifetime Savings Association (PLSA) updated its annual ‘Retirement Living Standards’ to reflect these unprecedented recent times. Quite alarmingly they discovered that some retirees would need to augment their budget by as much as 19% to maintain the same standard of living they had enjoyed at the beginning of 2022.

The PLSA, in their annual Retirement Living Standards take into account and review not only the public’s expectations of what retired households need but also the changing prices of the goods on the shelves and the services most used by the retired sector in society. Not surprisingly, the organisation noted that it was those who had retired with a lower income most harshly impacted die to the proportion of their budget that was having to go towards food and energy where the inflation has been at its highest.

The following graphic illustrates the 2023 report from the PLSA and introduces their concept, which we as financial planners find a very useful guide when assisting our clients plan for their retirement:

As you will note, if you read the PLSA press release, they are advocating reforms, to better assist individual saving for retirement, via Government policy. However, at FB Wealth, every day we advise and assist clients to take more personal responsibility to ensure they will not find themselves reliant on others and enjoying, or perhaps not enjoying, a minimum or even moderate lifestyle post work. The PLSA figures, are of course only a guide, albeit a very useful one, and each individual, or couple’s situation will be unique and dependent on their own aspirations, costs and expectations for retired life. This is why ensuring your clients are seeking financial advice and indeed sitting down regularly with their financial planner to review their own pension and income is vital.

In an ideal world, you will have referred a client/s to us well ahead of retirement so we can build a real financial plan, based on true cash-flow forecasting and modelling, to ensure a ‘comfortable’ well-earned retirement. Such a plan, because it is regularly reviewed can take in account prevailing conditions and unexpected changes, such as we have experienced over the past 12 months.

However, even those close to or already in retirement can benefit from the specialist and qualified advice available from FB Wealth’s experienced team. Every client or client’s situation will be different and personal, so a proper review of how an individual or households’ expenses and expenditure is useful. Inflation is a useful indicator, but your client’s own personal inflation may be different. It will depend on how and where money is spent and personal priorities. Such analysis can identify not only shortfalls but potential actions of solutions.

Financial planner can also identify with a client, all possible sources of income and advise how to prioritise which to use and when. They may be more than the state pension with occupational pensions, various types of personal pensions, choices of annuities of course but which will keep pace with inflation, and which will not? Some of the arrangements can offer a flexible drawdown which may of may not be appropriate. This can depend on the investment markets and a person’s attitude or appetite for risk, or otherwise.

In addition, there may be alternative sources of regular income, such as savings, investments, your property or even anticipated inheritances which it will be important to incorporate in any retirement income planning. Ensuring income is drawn in the most tax-efficient manner is also very much a key advisory role for the financial planner.

Finally, and essentially, there is no true retirement income planning without asking the most important, although often one without a definitive answer, question – will my money run out before I die? Again, this whole discussion around reasonable expectations of life expectancy and ensuring the available pension funds and other assets can last, whist offering an income to reflect the desired lifestyle is unique to each individual or couple and will take into account their own attitudes to risk, inflation and investment, as well as personal goal and retirement objectives.

This, after all, is what the true financial planning we offer at FB Wealth is all about and we would welcome any opportunity to discuss anything in this article or individual clients with you.