The financial challenges currently facing retirees
Are you in your 40s or 50s, in the decades approaching retirement? So here is some information that could be vital for you.
This month, four groups of people have been identified who will be hardest hit by the current steep rise in the cost of living.
A new report from the Office for National Statistics (ONS) says public sector workers, construction workers and manufacturing workers will struggle over the coming year or years.
The fourth group – the one we are going to deal with today – is that of retirees.
Price inflation reached 7% in March, the highest in 30 years. The Bank of England expects it to hit 7.25% this month, and the show is not over yet: it is expected to top 8% this summer.
The state pension, meanwhile, has not risen to the challenge. It has risen this year to less than half the rate of inflation, at just 3.1%, which means it is simply not buying as much as it did last year.
Retirees who also have a personal pension that they have converted into an annuity will also be affected. While those on inflation-indexed annuities will see their income increase, most annuities are level annuities which do not increase and, like the state pension, have seen their purchasing power eroded this year. This is likely to continue in the immediate future.
Pensioners are getting poorer.
Moreover, more of their income is being eaten up by the cost of food, heating and basic necessities, as the fallout from the war in Ukraine and other global factors take their toll.
The Ukrainian situation caused the price of gas to skyrocket, but we were protected from the worst excesses by the capping of energy prices. Even with the cap, gasoline prices increased by 28.3% and electricity by 19.2%.
Bad as it is, it’s the calm before the storm. The cap on energy prices in Britain has just been raised again, and energy prices will now rise by 54% compared to last year.
Oil has already led the way, with the price of heating oil rising by 113.9% in one year, according to the ONS.
The price of gasoline is linked to this, as gasoline and diesel are both made from petroleum. Last March, the average petrol price was 123.7 pence per litre; it’s now up to 160.2p.
In simpler terms, the cost of filling an average car has increased by £20.08 over the past year to February.
Clothing prices rose nearly 10% and the cost of furniture more than 17%, the biggest jump since records began.
This exacerbates the financial difficulties faced by retirees.
Between them, Russia and Ukraine are dubbed “the breadbasket of the world” because of their massive wheat production: the International Food Policy Research Institute estimates that their exports account for 12% of all food calories traded in the world.
I should say “represented”. Now that we’ve lost those wheat supplies, it’s driving up the price of our bread, pasta, and grain products. It also drives up the price of feed and fertilizer, which will affect the price of meat on our supermarket shelves.
The standard of living we took for granted five years ago has been hit hard by a series of unexpected global events, and no one is hit harder than retirees.
It shows that anticipation is essential to make the most of our retirement savings; but we need to act now, so that any changes we make have time to grow our money as we approach retirement.
Quality financial advice can help you with this plan, especially if you belong to one of the four groups we mention here: construction workers, public sector, manufacturing or already retired.
:: Michael Kennedy is an independent financial adviser and pension specialist and can be contacted on 028 71886005. More information on Facebook at Kennedy Independent Financial Advice or at www.mkennedyfinancial.com