Bear in mind that retirement savings are for the long run. The Coronavirus (COVID-19) is having a widespread impact across all elements of financial life, including retirement plans. The current global stock exchange turbulence, as a result of COVID-19, will undoubtedly be concerning for people whose retirement savings are spent partly or entirely during these volatile marketplace conditions. However, making decisions based on what is happening in the short term may be a risky thing to do. It may be tempting, for instance, to consider transferring all your investments into cash or other lower-risk investments - but in doing so, you not only lock in the loss as a result of recent falls, but you may also miss out as the value goes back up, so you'd lose out in the long term also.
Here are our tips on how to navigate these difficult times.
Allow time for Markets to Recover
It is really important to remember that retirement savings are for the long term. If you are young and paying towards a workplace pension, then there's time to your pension pot to achieve growth over the long run and regain the losses caused by the volatility now being experienced in the stock markets. You shouldn't be overly concerned, as you have many working years to come, and this will provide time for markets to recover before you're ready to take your retirement income.
If you are older and closer to retirement, you may have seen your funds 'lifestyled'. This means that your pension will have been transferred into generally less risky funds and invested in 'safer' areas like cash, gilts or bonds, which are lower risk and in the main provide a fixed rate of return. The older you get, the more pension schemes tend to invest in these assets to limit investment risk. But, not all pension schemes provide automatic lifestyling.
The reality of Purchasing an annuity now
An annuity is a retirement income product that you purchase with some or all your pension pot. It pays a regular retirement income for life or for a set interval. If you are intending to retire soon, and were preparing to buy an annuity, in March, the Bank of England cut the base rate twice in just over a week as a further emergency response to the coronavirus pandemic, reducing it from 0.25% to 0.1%. This has meant annuity rates have also fallen.
If You're still thinking of securing an income by buying an annuity, the current volatility indicates the importance of gradually reducing the risk in your portfolio as you approach your anticipated annuity purchase date. Doing so provides greater certainty over the lump sum you will have available to buy your annuity, which in turn will give you clarity over exactly how much secured income you can expect to make from the fund.
Drawdown
Drawdown is a way of taking money from your pension to live on during retirement. You need to be aged 55 or over and have a defined contribution pension to get your money this way. You keep your retirement savings invested when you retire and take money from (or 'drawdown') out of your pension pot. If the last few months have taught us anything, it is the stock markets can be quite volatile, so because your money remains invested -- and it is usually in the stock market - should you select drawdown you will need to be comfortable that the markets and the value of your pension could fall as well as rise. The upside is that investment growth can provide higher returns and see your pension pot continue to increase in value even though you are taking an income from it.
If we continue to see a protracted period of negative investment returns, and you are already using drawdown or intend to move into drawdown shortly, you may also wish to avoid taking out more than you will need to while stock market values remain depressed. The more you are able to leave in, the more you'll profit over time once there's a recovery.
Keep making Contributions
If you're still in the process of saving for your retirement now might be a great time to think about increasing your pension contributions. Despite the fact that there is short term volatility in markets, increases in contributions over the long term can make a major difference to your eventual retirement fund's value, especially if it coincides with a recovery in the market.
Stagger your retirement
A new study [1] has shown how many pensioners are choosing to stagger their retirement, moving part-time prior to giving up work entirely to make sure their pensions will last for for as long as possible after they fully retire. With people living longer, and with the extra prospect of long term care costs in later life, retirees increasingly know the advantages of having a bigger pension pot.
Of those who have not touched their pension pot, half (51 percent ) say it's because they're still in work, while over a quarter (25 percent ) of those in their 60s say it's because they need their pensions to hold out as long as possible.
Naturally, retirees who have not yet touched their pension pot must have alternative sources of revenue. When asked about their income, almost half (47 percent) said they take an income from savings, others rely on their partner or spouse's income (35 percent) or the State Pension (22 percent), while 12% rely on income from property.
Professional Financial Advice Counts
If you are about to retire, the amount of exposure you have will reflect both your attitude to investment risk and the time you have until retirement. Most of all, before making any significant decisions concerning your pension, take professional financial advice.
And There's no need to fear - at this stage, we don't know what the long-term consequences of coronavirus will be. An adviser can help you focus on what's important, weigh all your options, and take a balanced assessment of your risks.
Ellis Bates Financial Advisers are independent financial advisers with offices across the United Kingdom. They manage over £1 billion of assets on behalf of clients, who have given them a 4.9/5.00 score with Trustist. https://www.ellisbates.com/about/reviews/
For more information please visit their website http://www.ellisbates.com
Source information: [1] LV= poll of over 1,000 adults aged over 50 with defined contributions -- 25 February 2020
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an Impact on the amount of pensions benefits available. Pensions aren't normally available until age 55. Your retirement income could also be affected by interest rates at the time you take your gains. The tax consequences of pension withdrawals will be dependent on your personal circumstances, tax legislation and regulations, which are subject to change. The value of Investments and income from them can go down. You might not get back the amount invested. Past performance is not a reliable indicator of future performance. Taking withdrawals may erode the capital value of the fund, especially if investment returns are poor and a high level of income is being taken. This could result in a lower income if and when an annuity is purchased.
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