Retiring? Better luck next time

My heart really does go out to anyone who is about to retire at this time. What a horrible position they are in. Not only has the value of their investment pool lost about 40% of its value over the last year, if it’s been invested in equities, but interest rates are forecast to come down even further, hurting their annuity payments if they have a private pension plan. But that’s really only the start…the real pain could yet lie ahead.

Since it is expensive to protect against a high level of inflation in an annuity, the retiree faces a difficult choice. Do I take the maximum income now from my annuity now and hope that inflation comes down as the government and industry say it will, or do I plan for inflation to creep up faster and faster as I draw the income from my annuity? This is such a tough choice at even the best of times since the variables are unknown, but the current economic situation makes this balancing act even tougher.

For those who do not wish to make this choice right now with so much financial uncertainty, the current rules many force them into the decision. If you are approaching your 75th birthday and have yet to vest a pension pot, the law as it stands today says you must do it before your birthday. This forces otherwise prudent savers into taking these decisions at exactly the worst time. So not only must they take the decision, they have no idea if the government’s huge spending plans will ramp up inflation after the commodity and GDP growth cooling period has ended and the prevailing force in the inflationary world becomes the money supply, which is currently being expanded massively.

Thank heavens I’m only 38…because I would have no idea which way to turn if this type of decision was forced onto me…and I’m a highly qualified pension’s adviser!

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Tags: Current Economic Situation, Government, Interest Rates, Investment, Pension, Private Pension