The biggest problem facing you when you plan your retirement fund ? or start taking the money ? is inflation. You may have fallen for government statistics that show inflation is low. Don't believe it! The official figures understate inflation, probably by 70-100%. In other words, if they say inflation is 3%it is probably 5%. Over 15-25 years, inflation at even 3% will have a serious effect on your savings.



What's worse is that a lot of the things that put fun into your life keep going up more than inflation ? basically, anything that involves labor, from hairdressing, restaurants to golf clubs. Also, we can expect the price of gasoline to double over the next five years ? and it will go even higher than that in 10-20 years time. This is not dependent on inflation but on the falling reserves of oil under the ground. What oil is there is less accessible, so it costs more to bring to market.

Here's the problem: when you are talking about retirement, you are looking ahead a long time. Even if you are 50, it will be 15 years before you retire, and by that time almost everything you buy could cost twice as much as now. You are probably expecting to live to 80 or more, and that is 30 or more years on from now if you are 50. Think back to what things cost 30 years ago and you will get a shock.

So if you are saving for retirement, try to save double whatever seems a reasonable amount at today's prices. One way to do this is to use a retirement calculator.

But what should you do when you retire? The normal thing is to buy an annuity which will pay you a guaranteed sum for the rest of your life. This will be a constant amount each month, but your spending power will decline each year.

Don't put all your money into one annuity

I would never put all my money into an annuity. Keep some back and do something else with it. Of course, you need to consult an independent investment advisor, but your best bet is to put some money into bonds and some into conservatively managed funds. This is not time to take high risks, but you do want a fund or funds that will keep ahead of inflation. That is not too difficult so long as the stock market is strong, and you have the bonds to guard against any weakness in the stock market ? and over a period of 20 years, there will be periods of weakness.