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04 Sep 2013

How To Plan Your Retirement Income

Securing a sufficient income for retirement has been a hot topic lately. Many investors have been focusing on drawing up plans to maximise what they can expect to receive after they retire. However, one of the most common mistakes investors make is concentrating on numerical values and ignoring the actual purchasing power of the money — in other words, they forget to factor in inflation.

According to Investors´ Chronicle, inflation is one of the biggest enemies of investors. They are all familiar with it, but because of its complexity, many tend to ignore it. By doing this, they risk saving less than they would ideally wish to have.

As a first step to avoid this pitfall, it is important to set a target income in retirement and work out a plan that will help investors secure it. When setting your target income, it is important to keep in mind that, for example, £1 million will not be worth the same in 25 years as it is today. In fact, at the current rate of inflation, one will need to save almost £2.5 million to have the same purchasing power as they would have with £1 million today, Investors´ Chronicle estimated.

Experts advise focusing on ‘real return´ when planning your retirement income. Specialists agree that the best way to generate a real return is to invest into a range of different asset classes, such as equities, fixed interest and property.

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