Inflation Risk

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Inflation Risk

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Posted on: 09/09/2014

Inflation Risk is like a stealth tax eating away at the value of your money. You won’t see a smaller cash balance in your account but you will definitely lose buying power.

The last 10 years from 2004 up to 2014 have seen total inflation of 37.97%. This means 10 years ago if (without taking into account any state pension) you needed pension income of £10,000 per year to maintain your standard of living, today you would need your Pension to be £13797 per annum.

Go back 20 years, and your £10000pa pension income would today need to be £17778 to maintain your standard of living. (Source: This is Money – how the value of money as changed since 1900)

Peering into the future, and assuming the current rate of inflation (2.1% as at August 2014) remains the same, we can see below the reduction in value of £10,000 due to inflation over the next 40 years.

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Source: This is Money

Looking at examples below of how the cost of living has increased over the short and long term, we see how prices can rapidly increase.

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Looking further back we see how the cost of living over the long term has increased. Figures from 1960 to 2009.

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