Financial services company LV= has highlighted the serious damage that inflation can do to your retirement pot.
It says that an increased cost of living may cause those who have stopped work to withdraw more of their pension savings each year than originally planned.
Savers who draw down a larger income from their pension run the risk of exhausting their pension fund, depending on their fund's growth rate.
A £200,000 pension fund could last 28 years if £12,000 a year is withdrawn - or just 15 years £18,000 a year is withdrawn.
LV= also reports that 25% or 13million UK adults say their monthly living costs are £250 higher than a year ago and 9% say their monthly costs have risen by £500 or more.
Retired people have seen their living costs rise on average by £163 a month - nearly £2,000 a year.
Meanwhile, 13% of those with extra living costs say they are struggling to pay for heating and 10% are struggling to pay for food.
People with rising living costs say they are adopting a variety of ways to make ends meet:
- 36% are saving less
- 34% are buying cheaper brands
- 30% are having fewer holidays and meals out
- 23% are dipping into savings
- 19% have cancelled some subscriptions
- 8% are taking on more credit card debt and loans
- 5% have asked friends and family for help
- 5% are paying less into their pension
- 5% have cancelled some insurance policies
Clive Bolton, managing director of savings and retirement at LV=, said:
"The LV= wealth and wellbeing monitor highlights how rising prices are squeezing the incomes of millions of people.
"Inflation fears have been rising since summer and rising prices pose a problem for retired people.
"Those on fixed incomes will see the purchasing power of their incomes fall.
Those drawing an income from their pension fund may be forced to withdraw more money from their pension fund than they anticipated and increase the risk of running out of funds in retirement.
"Rising fuel bills mean many are making cutbacks to other areas of expenditure while many are dipping into savings, taking on extra debt or borrowing from family to make ends meet.
"One of the big issues people now face is how to also protect the future spending power of their savings being eroded by rising prices.
"This is especially true if they keep their money in savings accounts and are reluctant to invest in what have typically been higher returning stock-market investments because they fear volatility.
"One solution could be smoothed investment funds that are designed to reduce the volatility of investment markets and produce real returns that over the long-term. The best option is to consult a financial adviser who will be able to identify the most suitable funds."
Based on tax legislation at the time of publication. Please be aware that there will have been changes since this was published. Speak to your adviser for the most up to date information.
