Don’t let high inflation derail your retirement planning
While the inflation rate is, mercifully, creeping downwards, falling slightly from 10.7% in November to 10.5% in December, it’s still well above the Bank of England’s target of 2%.
As a result, many people are having to make some very tough financial decisions. But are they making the right ones?
For example, financial pressures are prompting some to leave their workplace pension scheme.
While this can free up some cash in the short term, it can have huge long-term consequences, and simply store up new financial problems further down the line. For example:
- The earlier you start saving, the more time and potential your pension has to grow. So if you stop saving, you could miss out on considerable compound investment returns, and its long-term value will be reduced.
- You’re missing out on pension contributions made by your employer, and in effect turning down money that you’re entitled to get as part of your job.
- You might have to rely more heavily on the state pension, which may not be enough to cover the cost of your desired lifestyle and help you meet your responsibilities.
- Since the government can increase the age at which you can start receiving a state pension, you might not be able to retire at a time of your choosing if you’re relying on it too heavily.
What should I do instead?
If you’re still thinking of leaving your workplace pension scheme to free up some cash, you should perhaps think about speaking with your employer to see how they could help.
Depending on how the scheme is structured, you might be able to reduce your contributions for a limited period, and then increase them again when your financial situation gets better.
At the same time, you could also approach any free advice services available, such as Citizens Advice, who offer guidance on managing the cost of living and can help identify any support you may be entitled to.
Additionally, it could well be worth consulting a professional financial planner, who will take a more holistic view of your finances and advise you on how to make your money work harder for you.
While many analysts are hoping the recent fall in inflation means we’re over the peak of the cost of living crisis, inflation still remains close to a 40-year high.
However, it’s essential that as you look to carry out short-term changes to make your money go further, you don’t put your long-term prospects at risk.
So don’t make rash decisions. Seek out the advice and support you need.