There are three things that mean entire retirements can be destroyed by inflation. The first is the same pressure hitting everyone - the rising cost of living. This is particularly hard for people on fixed incomes - who cannot earn more money in order to meet this rising cost, and who simply have to cut back even more. Many of them have already cut expenses to the bone, so the real risk of a choice between heating and eating raises its ugly head again this winter.
The second horrible impact is the effect on retirement incomes. In recent years, as annuity rates fell dramatically, pensioners started having to make uncomfortable compromises. In many cases, they decided to buy an annuity that would mean higher initial monthly payments - in return for severing the link to inflation. While inflation was at roughly zero, it meant very little, but as it rises, people will be living on less and less in real terms every month. Over the years, given sustained inflation, this could easily mean the value of pension payments erode by half or more.
Aegean has published its Golden Age of Retirement report and found that inflation is the biggest financial concern of all for pensioners aged between 65 and 74 - and is a real worry for a third of pensioners in this age group. They are more alarmed about the threat of inflation than either care costs or changes to the state pension.
Destruction of savings
The third crushing blow is that this inflation is coming at a time of very low interest rates. For people with enormous mortgages, this is actually a great thing. It means they continue to pay very little interest, but the amount of money they owe in real terms is getting smaller and smaller. For those who have savings - including most retirees - this is a disaster. It means there is exceptionally little chance of finding a savings account that keeps pace with inflation (after tax), so effectively your savings are losing value every day.
Richard Wazacz of the peer-to-peer lending platform, Octopus Choice, says: "Savers must be feeling like they sinned in another life. In an entrenched low interest rate environment, rising inflation is rubbing salt in the wound of anyone with money held in cash."
"The combination of poor returns on cash and rising inflation means that, in real terms, people's savings are evaporating, not growing. And with Bank of England Governor, Mark Carney, saying he is prepared to let inflation overshoot the official 2% target, there is no obvious end to the pain in sight."
The only light at the end of the tunnel for retirees comes from Ben Brettell, Senior Economist at Hargreaves Lansdown, who argues that this is a blip. He says: "The bigger picture is that structurally there are very few inflationary pressures – due in part to demographic reasons. The baby boomers are starting to retire in their droves. They have already gone thorough their consumption phase – they have bought their houses, cars and consumer goods. The generation behind them is saddled with debt and struggling to get on the housing ladder. There is also no sign of any tightness in the labour market, with wage growth seemingly set to remain depressed. All this should mean less inflationary pressure, lacklustre economic growth, and little upward pressure on interest rates."
Of course, this theory still involves us going through the pain barrier of not being able to afford to maintain our lifestyles, and therefore cutting back on demand, before inflation settles again - which somewhat takes the shine off this particular silver lining.
Seven retirement nightmares
Seven retirement nightmares
Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship. Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so. To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension. In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.
Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.
The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.
Around 427,000 households in the over-70 age groups are either three months behind with a debt repayment or subject to some form of debt action such as insolvency, according to the Consumer Credit Counselling Service (CCCS).
Its figures also show that those aged 60 or older who came to the CCCS for help last year owed an average of £22,330. Whether you are retired or not, the best way to tackle debt problems is head on.
Free counselling services from the likes of CCCS and Citizens Advice can help with budgeting and dealing with creditors.
Importantly, they can also conduct a welfare benefits check to make sure you are receiving the pension credit, housing and council tax benefits, attendance and disability living allowances you are entitled to.
The average UK pensioner household faces a £111,400 tax bill in retirement as increasing longevity means pensioners are living on average up to 19 years past the age of 65, according to figures from MetLife. And every year in retirement adds an extra £5,864 in direct and indirect taxes based on current tax rates to the costs for the average pensioner household. You can be forced to go bankrupt if you fail to pay your taxes, so it is vital to factor these costs into your retirement planning.It is also important to check that you are receiving all the benefits and tax breaks you are entitled to if you want to make the most of your retirement cash.
The cost of a room in a care home in many parts of the country is now over £30,000 a year, according to figures from Prestige Nursing and Care. So even if the prime minister announces a cap on care costs - last year the economist Andrew Dilnot called for a new system of funding which would mean that no one would pay more than £35,000 for lifetime care - families will still face huge accommodation costs. Ways to cut this cost include opting for home care rather than a care home. Jonathan Bruce, managing director of Prestige Nursing and Care, said: "For older people who may need care in the shorter term, home care is an option which allows people to maintain their independence for longer while living in their own home and should be included in the cap." However, the only other answer is to save more while you can.
Older Britons are often targeted by unscrupulous criminals - especially if they have a bit of money put away. For example, many over 50s were victims of the so-called courier scam that tricked into keying their pin numbers into their phones and handing their cards to "couriers" who visited their homes. It parted consumers from £1.5 million in under two years. Detective Chief Inspector Paul Barnard, head of the bank sponsored dedicated cheque and plastic crime unit (DCPCU), said: "Many of us feel confident that we can spot fraudsters, but this type of crime can be sophisticated and could happen to anyone." The same is true of boiler room scams that target wealthier Britons with money to invest, offering "once-in-a-lifetime" opportunities to snap up shares at bargain prices. Tactics to watch out for include cold calling, putting you under pressure to pay up or lose the opportunity for good, and claiming to have insider information that they are prepared to share with you.