The cost-of-living crisis is escalating at an alarming rate, resulting in a great deal of anxiety for many trying to plan for the future. We reached out to Andrew Megson, the executive chairman of My Pension Expert, for advice on the best way forward.

Inflation recently reached a thirty-year high of 7%. Meanwhile, grocery inflation topped 5.9% – its highest level since December 2011. Such figures certainly threaten UK pre-retirees retirement strategies. Indeed, even those who have diligently saved throughout their working life may see their pension pot struggling to hold its value in the long term.

Therefore, it is little wonder that recent research from My Pension Expert found that half (50%) of wealthy pension planners consider inflation to mark the most significant threat to their retirement. And in times of financial strain and uncertainty, some may feel that they have no other choice but to explore riskier retirement income options – such as higher-risk investments – to protect their financial futures.

Turning to investments
My Pension Expert’s previously mentioned research revealed that over a third (34%) of affluent Britons had placed more of their savings into investments to counteract the combined effects of rising inflation and low-interest rates. Elsewhere over two fifths (44%) claim that lower interest rates have prompted them to explore riskier investment opportunities to help their retirement savings hold their value.

Such figures indeed suggest that the combined effects of the cost-of-living crisis and the UK’s post-pandemic economic volatility have increased pension planners’ appetite for risk.

This is certainly understandable. Investments do have the potential to transform an individual’s retirement strategy and, if strategised effectively, enable a pension pot to easily hold its value against inflation.

However, it seems that some investors are not receiving the help they need when it comes to making investment decisions. Indeed, the majority (52%) of wealthy savers feel confident allocating their own retirement investments to find their retirement strategy. As such, just 32% have consulted an independent retirement adviser about their retirement investment strategy.

And this could present certain risks later down the line.

Acknowledging risk
It is important to understand that investments can present their own set of risks. For example, investments can be incredibly sensitive to market changes and fluctuate in accordance with volatility. Savers must therefore be able to hold their nerve in times of uncertainty as they wait for markets to stabilise. If they panic and withdraw their investments, they run the risk of taking on potentially irretrievable losses.

Further, certain illiquid investments, such as property, vintage cars, or art, whilst incredibly valuable, can be difficult to rapidly sell on to another investor. So, if a pension planner wants to access the money quickly, such investments could create some financial difficulty later down the line.

The key, therefore, is to conduct thorough research before making any final investment decision. Of course, this will involve several factors, including due diligence on each specific investment, calculating the individual’s risk appetite, their current financial situation, and their retirement goals are all vital elements which must feed into the strategy.

This might seem like an overwhelming task; however, it needn’t be. Indeed, independent financial advisers are always on hand to provide tailored recommendations and analyses to help a pension planner decide which investments to pursue.

Advisers can take on the majority of the complicated legwork and analysis on behalf of their clients. For example, a thorough review of their financial situation, personal preferences, and future goals will help them determine the individual’s risk appetite and, therefore, which investments would be best suited to them. In some cases, it may involve taking on riskier investments that could provide rapid returns, whilst others might be better suited to more reliable investments which grow at a steady rate.

When faced with the prospect of one’s pension pot depleting in value, it is only natural that individuals explore alternative methods to bolster their savings – and investments can be an excellent option for this. However, the key is to seek independent financial advice before making a final decision. In doing so, Britons will be reassured that their money is working as hard as possible through a strategy that is tailored to their specific needs.

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