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Effects of inflation


Use our client facing material to get people thinking about inflation and how investing might just be the answer.

What is available?

  • Blog one – Deeper look at inflation - read our latest blog to find out how retirees are essentially being hit twice by inflation

  • Blog two – Are your savings working hard enough? Read our latest blog that helps explain to clients how combining inflation with low interest rates is not good news.

How to use these items:

  • You can use these items in a way that suits you. For example, you can include them in a client newsletter, add them to your website or email them to your clients.

  • Just below each item is a choice of pre-written social media posts. Use these to stimulate interest or drive traffic to your website.

  • You can send these articles with a sentence showing your contact details or a list of your services and ways to help your client.

  • Whilst every care has been taken to ensure the accuracy of the following information, please be aware that it's your responsibility to make sure anything you send is compliant and appropriate for your clients.

With inflation at *5.5%, quite simply, if you're saving for retirement your money is going to have to work harder to keep it's value

Let’s say you were planning to retire on savings of £100,000. If prices go up by 10% before you retire, you’ll need to save an additional £10,000 to have the same retirement you had planned for.  This means you’ll either have to save more, looking at investing to potentially grow your money, or delay retirement. Of course you could still retire with your £100,000 but there’s no getting round the fact it won’t be ‘worth’ as much in terms of what you can buy for your money.  

As with any investment your money has the chance to go down as well as up and you may not get back what you put in.

If you’re already in retirement the opposite applies. Let’s say you already have a yearly income of £10,000 and prices rise by 10%. In order to enjoy exactly the same standard of living your income will need to increase by 10%.  And while some incomes from pensions, and the state pension do increase each year, many of these are unlikely to keep up with inflation.

Inflation brings another problem to those already in retirement. If you’re retired you essentially get hit twice.  Not only is the purchasing power of your money reduced but if you are generally spending more time at home than when you were working,  it’s likely to means an increase in energy bills (and we know that currently energy prices are rising) so inflation creates two issues, your money is ‘worth less’ and yet you are paying more for the cost of living. . 

Inflation is currently 5.5%, at that rate it would take a little over 12 years to halve the value of your money.

So how can you help combat the effects of inflation?

Investing gives your money the chance to grow which can help offset the effect of inflation.   But the term investing can often put people off or it conjures up visions of high stakes and either winning big or losing everything. However, in reality there are many different ways to invest and many different levels of risk and reward so there are many ways your money can work harder for you. Isn’t it at least worth considering?

*Source ONS as at January 2022

Could you be getting hit by inflation twice? Find out how your retirement savings could be affected and how you could combat the effects. <link to article>

In 25 years your cash could have lost almost half its value due to inflation.  And yet many people still have their savings in cash ISAs or sitting in the bank. There’s usually something comforting about having money in the bank but the likelihood is it might not be doing you any favours.

It’s always important to have money available for the unexpected things. A good rule of thumb is to have a minimum of three months essential outgoings readily available. But if you have more than that, are you missing out?

The impact of inflation on your savings

Put simply inflation is the rising cost of goods and service that you buy. If Inflation is rising it means you can buy less with your money. You just need to look at the current energy crisis to see the effects of inflation.  

Let’s say inflation is 2.5% each year, the purchasing power of £10,000 today would be worth £5,394 in 25 years, so just over half. This examples assumes inflation doesn’t change and the money has not grown over time.  Now bear in mind that inflation is currently sitting at *5.5%.

Combining inflation with low interest rates is not good news.

Interest rates have been fairly low for many years now. If inflation is rising and your money is earning very little or no interest, it’s effectively doing nothing. Actually it is probably doing ‘worse’ than nothing and losing value.

Why are we ok losing money to inflation, but the thought of investing scares many of us into not even considering it?

Is it because we hear about inflation all the time, on the news, in the press and it is an ‘every day word’ where as ‘investing ‘ isn’t to a lot of people? There are probably many reason but like everything, the more you know about it the better informed your decision are.

Yes investing has potential risks and you could lose money. But it also has the opportunity to grow your money and make it work harder. Inflation eats away at the value of your money without the opportunity for growth. So isn’t it at least worth considering? 

But remember past performance is not a guide to the future and the value of any investment can go down as well as up and you could get back less than you put it in. 

*Source ONS, January 2022

Are your savings working hard enough? In 25 years your cash could have lost almost half its value due to inflation. Find out more about the effects of inflation on savings. <link to article>

Combining high inflation with low interest rates is generally not good news for those with savings in cash. Find out why and how your money could work harder for you. <link to article>