Retirement and the cost of living crisis

“In the last 12 months we have seen a rise in enquiries from clients about whether they can afford to retire” says Andrew Gilmore, chartered financial planner.

“With questions about inflation; when the figures are expected to decrease, along with questions about the rise in energy bills and other general household costs. Some clients are worried that this is making their retirement seem further away than they had planned”

What is happening?

Research from Legal & General showed that more than 2.5 million people are planning to delay retirement due to the cost of living crisis, with 16% of pre-retirees looking for additional work in order to boost their income, and 10% concerned about job security in light of the current economic conditions.

Will people delaying their retirement or those who have retired considering a return to work (even on a part time or ad-hoc basis) become a regular theme over the next few years?

During 2022 the global stock market reacted to these issues with markets performing at their poorest since the global financial crisis in 2008. Even perceived safer asset classes such as bonds were impacted significantly. However, we have seen a rally particularly in the first few months of 2023 with some positive inflation predictions.

Why is it happening?

Inflation and the increasing costs for households has been on the agenda for some time.

A recent survey from Handelsbanken Wealth and Asset Management of 2,000 people in the over 50s age group found that the squeeze was also affecting everyday spending habits, with more than 59% of over 50s spending less on ‘non-essential’ items. The Handelsbanken research found that ‘50-somethings’ were the age group feeling the impact of rising inflation more than most, with almost 64% spending less on non-essential items, dropping slightly to 62% among people in their 60s.

The Office for National Statistics (ONS) confirmed that gas prices rose by a massive 129.4% and the cost of electricity rose by 66.7% in the 12 months to March 2023. Similarly, food costs are on the rise with The Food Foundation quoting that food inflation has jumped from 16.7% to 18% in March.

These additional costs for consumers are putting pressure on businesses to increase salaries, and with a strong jobs market and vacancies to fill, the option of going back to work for retirees is becoming attractive for many.

The Chartered Institute of Personnel and Development (CIPD) said “We begin 2023 with headlines of strikes, high rates of inflation and rising interest rates, but few headlines on the labour market itself. Why? Because the labour market remains persistently tight – vacant jobs are plentiful but available workers are scarce”

Increases in pay whilst necessary, also contribute to inflation and are prolonging the slow down.

What should we do?

In response to the above, to slow down the economy and reduce the demand, central banks have been increasing interest rates. However, higher interest rates do not tackle other issues including supply constraints and higher oil prices.

“We undertake cash flow planning for our clients, which includes regularly stress testing the impact of market conditions being negative in the short term and the impact of longer term inflation on spending” says Andrew Gilmore Chartered Financial Planner

“the stress testing used with our cash flow modelling is well within the current market conditions, but we would stress that the longer term outlook for markets is positive, ensuring that you have a plan that is regularly reviewed will provide a better chance of a long and happy retirement”

Is it working?

The latest change to interest rates in the UK was announced on 11th May, with the Bank of England increasing rates by 0.25% to 4.5%. Many in the UK are now predicting that this is close to peak inflation, which is now starting to fall. This fall has been at a slower rate than anticipated, though (10.1% from 10.4% in March). Over the coming months, if inflation continues to fall, this is likely to be positive for markets and should create more stability and less volatility caused by inflation in global markets.

Would you like to know more?

If you would like to discuss the options available for your retirement, please contact your financial planner directly, or call Active Chartered Financial Planners on 01642 765957


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