This year may spell retirement for some, but high inflation squeezing pension pots may mean there are some things to consider.

Ed Monk, associate director for personal investing at Fidelity International, said: “Those planning to retire this year will have questions about their financial future.

“Many of the risks you face at retirement are outside of your control.”

However, he noted: “The key lies in acknowledging these unknowns and understanding them to enhance the potential for maximising income options.”

To help those considering retirement this year, Mr Monk shared some key steps to address before making an imminent decision.

Consider pension pot performance

Mr Monk suggested people consider their current pension pots’ performance before taking the plunge.

He explained: “There has been some recovery after both stocks and bonds – the two assets most likely to comprise the bulk of pension pots – fell in tandem in 2022. But retirement funds may still be regaining some of their value following more challenging conditions.”

“The performance of a pension pot will depend on the assets within it but, as an example, a fund made up of 60 percent equities and 40 percent fixed income assets lost more than 15 percent between the market high at the start of 2022 and the low in October of that year.”

While funds have since recovered “somewhat”, Mr Monk said these currently remain around four percent below the peak.

Review annuity rates

Mr Monk said the “silver lining” for those retiring now is that the market falls impacting the value of their retirement funds have been accompanied by improving returns on other assets.

He explained: “Annuities are paying more because the yields on some bonds have risen in line with interest rates and so this reverses many years in which annuity rates have been low and many retirees are now considering annuities as an option once again.

“The average rate for a 65-year-old buying a level annuity in December 2021 was 4.53 percent. By July 2023, this had risen to 6.92 percent and it remains elevated today at 6.27 percent.

“This gives those retiring more options for their income, including blending annuities with income from investments.”

The role of the state pension

The state pension is an important component in any retirement plan and the good news for retirees is that this payment is due to rise again in April thanks to the Government’s triple lock policy.

This sees the state pension payment increase in line with the highest of wages, inflation or 2.5 percent.

In 2023, the wages figure was highest meaning that the state pension will rise by 8.5 percent in April.

Mr Monk said: “It means pensioners will have seen their weekly payments jump from just £185.15 in 2022/23 to £221.18 in 2024/25 – a rise of more than 19 percent in two years.”

Mr Monk added: “If your plans have changed, you might want to explore other potential sources of additional income, for example, whether you might consider a phased retirement or looking at opportunities for part-time work.

“This might require a change in plans over the next year or so while allowing you to focus on your longer-term goals.

“Review your state pension entitlement, workplace pensions, and any private pensions you may have, and consider blending the stability of annuities with income from investments and monitor your progress along the way. Adaptability and a well-balanced retirement strategy are key to ensuring a secure and sustainable retirement journey.”