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The surge in inflation is a concern to most; however, if you are retired and drawing an income from your pension, you are likely to wonder whether your retirement pot can sustain the rising prices and what this may mean for your ongoing lifestyle and future ambitions. Finding ways to reduce the effect of inflation are vital for most of us, but it is essential for retirees. In this week’s article, we explore some of the ways to mitigate its impact.

Understanding how inflation affects you

As a retiree, you are likely to have several income streams from which you intend to fund your retirement and possibly to make gifts to future generations during your lifetime and via your estate. Some of your income streams may automatically increase annually by a set percentage to help combat rising prices. However, if prices are rising higher than your required retirement income, then you may now need to withdraw more income. This means your withdrawal rates could become unsustainable over the longer term. In the worst case scenario, you could diminish your investment portfolio and savings over a shorter period of time and potentially run out of money.

While this sounds distressing, speaking to a financial planner with expertise will provide you with a clearer picture of your overall financial position, how inflation may erode your wealth and crucially what to do about it. This includes bringing your finances to life with lifetime cashflow modelling to demonstrate your resilience to incorporating higher living costs. With this information, you can start to evaluate whether you need to adjust your financial objectives.

Where to invest to combat inflation

Having a contingency pot of cash readily available to cover between 3 – 12 months of your expenditure should always feature in one’s overall portfolio. This can be used in the event of an emergency or to avoid having to access your investment portfolio when the market is volatile and valuations are moving. However, there is the risk that you may have too much cash, which makes it even more challenging to at least maintain your future purchasing power in the years to come. Although interest rates are increasing, they remain low when compared to the last 40 years, which means having far too much excess cash will make it harder for you to keep up with rising prices.

With the likes of NS&I Index Linked Saving Accounts a thing of the past for new investors looking to maintain their future purchasing power, the best way to guard your retirement assets against the impact of inflation is to have a well-managed diversified portfolio that is invested across a range of assets classes with a global focus. Over the long term, history has shown that asset classes such as equity and bonds tend to outperform cash. As a result, they are ultimately helping you to mitigate against the impact of rising costs.

Where to invest and how much you should allocate across the various asset classes will be specific to your own circumstances and financial objectives. But, again, this is where having a financial plan in place is important to help determine the most appropriate risk profile for your individual circumstances.

How to structure your wealth

How you structure your wealth can significantly impact the likelihood of your capital outliving you, instead of the other way around. Typically, this can save you tax both immediately and over the medium/long term. This means you could have more capital available for you to enjoy your lifestyle whilst potentially paying less in taxes in the future.

There are various steps you can undertake to improve your financial wellbeing. Firstly, you need to understand that all taxes, thresholds and allowances interact with each other in one way or another. Therefore, careful consideration must be taken when determining how your retirement strategy should be constructed. This includes assessing how much income you require each year and planning for one-off events. Importantly, both the structure of your retirement strategy and income needs are reviewed on an ongoing basis, and as your circumstances change. A financial planner will take a holistic picture of your existing wealth and build a financial plan for the most tax efficient way of structuring your wealth in retirement, helping you achieve what is important.

Have you made the right plans for a secure financial future?

Start talking to us today about your financial ambitions, and we can help make it a resilient future. We take the time to understand your goals and objectives to ensure our advice is specific to your needs and aspirations – helping you build a brighter financial future.  To discuss your circumstances in confidence, please contact us on 0131 514 2770 or email to arrange a no-obligation meeting.

January 2023.


Risk warning

Any expressions of opinion are those of the author and not necessarily those of the firm.

This article does not constitute advice, and a full assessment would need to be completed by one of our specialist advisers to understand an individual’s circumstances. Please remember that the value of investments can fluctuate, and you may get back less than you invested.  Past performance is not necessarily an indicator of future returns.

Waverton Wealth Planning LLP is authorised and regulated by the Financial Conduct Authority (FCA).

Waverton Wealth Planning LLP is registered in Scotland (SO302894). Registered office – Exchange Tower, 19 Canning Street, Edinburgh, EH3 8EH.

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