|Accept it. Inflation will erode the purchasing power of your retirement income. To illustrate the point the diagram shows just how quickly the purchasing power of money halves.
At 10% inflation it could take about seven years to halve the purchasing power of your money, while at 5% inflation it takes just over 14 years.
A clever rule of thumb -referred to as "The Rule of 72" -is very useful when talking about inflation. If you divide 72 by the assumed inflation rate, you will know approximately how long it takes to halve your money. (For example, 72/10 = 7,2. It takes inflation approximately seven years to halve your money at 10%.)
While annuities can have an escalation clause built into them, this often does not cater for the full effect of inflation.
Regular reviews and adjustments to our retirement plans are the only way to combat an ever-rising cost of living and the effects of inflation.