It's critical to consider how inflation may affect retirement income over time as one of the biggest financial challenges in retirement is budgeting to live on a fixed income.
Most annuities offer options to automatically increase income each year by a set percentage (usually 3% or 5%) or by linking to a measure of inflation such as the Retail Prices Index. These options will reduce initial income as income will increase in the future.
The chart above maps the Retail Prices Index over time, our calculator allows you to contrast level and escalating annuities.
Points to Consider
- Future increases in the cost of living may begin to reduce the real value of annuity income
- Inflation of 5.5% per year (the average inflation rate over the last 60 years) could reduce the real value of annuity income by over 50% in just 13 years
- In times of deflation some index linked annuities can decrease, whilst others have built in 'floors' meaning annuity income will never fall
Useful LinksLearn about the Joint Annuity option
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