Inflation, interest, and investment performance: how could changes impact your retirement?

From record highs for the stock market to rising oil prices following the outbreak of war in the Middle East, the first few months of 2026 have been something of a mixed bag.

Whether you’re approaching retirement or already retired, you may be wondering how inflation, interest rates, and share values could impact your finances.

Read on to learn how inflation, interest rates, and stock market performance can affect your retirement, and how comprehensive planning can help cushion your finances against an uncertain future.

Inflation can erode your retirement savings through higher prices

The Consumer Prices Index (CPI) tracks the rate at which prices of goods and services are increasing.

Between September 2025 and February 2026, data from the Office for National Statistics (ONS) shows that the CPI decreased from 3.8% to 3%. The Bank of England (BoE) expected inflation to reach its 2% target by spring 2026.

However, with the crisis in the Middle East continuing to push fuel prices higher, CPI increased to 3.3% in March. While a dip to 2.8% was announced on 20 May 2026, the rate remains above the BoE target and may rise in future. In fact, BBC News reports that analysts expect inflation to reach 4% by the end of 2026.

While inflation is expected to remain above 2%, it’s important to acknowledge that the rate is substantially lower than in recent years. As reported by UK Parliament, inflation reached a 41-year high of 11.1% in October 2022.

What could this mean for my retirement?

Rising prices can erode your retirement savings, meaning they may not stretch as far. In some cases, you may need to adjust your plans and goals, or risk running out of funds later in life.

Data from BritClock suggests that, as of April 2026, average household costs had risen by around £3,200 a year since 2021.

That’s why it’s so important to factor inflation into your retirement planning. At J Edward Sellars, our financial planners support our clients to determine how much income they will need in retirement based on their ideal lifestyle, goals, and average inflation.

If you’re already retired and worried about rising costs, we can help you plan a sustainable income and budget that takes inflation into account.

Interest rates can affect your savings growth

The BoE base rate generally guides the rate at which your savings grow, as well as the cost of debt (such as mortgages).

The bank rate is closely linked to the inflation rate. Over recent months, the BoE has been gradually cutting the interest rate in a bid to lower inflation. It fell from 5.25% in July 2025 to 3.75% in January 2026.

With inflation starting to creep back up, the bank rate was held at 3.75% in April. The BoE may increase the interest rate if inflation continues rising.

What could this mean for my retirement?

If you hold some of your retirement funds in savings or cash investments, high interest rates could accelerate your money’s growth.

That said, if you have a mortgage or other debts, rising interest rates could increase the amount you have to repay. Many people will have paid off their mortgage when they retire, but rising rates in the years leading up to retirement could mean you can’t afford to pay as much into your pension.

Your pension grows through investment returns

The FTSE 100 is an index of 100 of the largest companies listed on the London Stock Exchange (LSE).

After reaching a record high in February 2026, the FTSE 100 has been volatile following the outbreak of war in the Middle East. Values have somewhat recovered from the lows of March, but continue to fluctuate amid the uncertainty of the war.

Short-term volatility is to be expected in the stock market. While values may fall during periods of volatility, historically they have always recovered and trended upwards in the long term.

Over the years, investing in the stock market has been one of the few ways to grow your wealth at a faster pace than inflation.

What could this mean for my retirement?

Generally, funds held in a defined contribution (DC) pension are invested in a range of assets, including stocks and shares.

A well-managed pension portfolio should mitigate the impact of market volatility. An adviser would suggest a diverse portfolio of investments, covering a range of asset classes, sectors, and risk levels. So, while some investments may fall, others may rise, levelling out the impacts of fluctuating values.

What’s more, in the long run, share values typically recover and continue growing. Historically, the global markets have recovered from even their most significant downswings. Although values have dropped in recent months, they’re likely to return to – and exceed – their previous levels in future.

It’s important to remember that your pension is a long-term investment built for resilience. Short-term drops are to be expected, and your pension pot is still likely to grow in the long term.

If you’re concerned about how stock market volatility could impact your retirement savings, our financial planners can assess your pension investments and provide a realistic outlook for how your savings could grow between now and when you access funds.

Get in touch

At J Edward Sellars, our team of financial planners closely monitor the financial markets to assess how inflation, interest rates, and stock market changes could impact our clients’ finances. If you’re unsure about the effects on your retirement savings and goals, get in touch for retirement planning support.

Email enquiries@jesellars.co.uk or call 01934 875 919 to find out more about how we can help you.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.