Pension Planning - Effect of Inflation

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Effect of Inflation

Inflation can have a huge impact on your income and low rates can reduce the spending power of your income, and therefore it is very important in pension planning. If prices were to rise by 3% a year, after 20 years a loaf of bread costing 60p would then cost £1.08, and the things that you could buy for £18,000, would cost you £10,000 today.

Another factor to take into consideration is your living standards through out retirement, once you retire the buying power will decrease, this fall may be considerable, therefore making a comfortable lifestyle near impossible. The State pension entitlement is increased annually with inflation, and so you do not need to make any adjustments to this amount.

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