The Covid-19 pandemic caused market volatility earlier this year and, while there has been a recovery, investment values may still be lower than they were at the beginning of 2020. In addition, knock-on economic concerns are also weighing on the minds of investors. So much so that some are considering changing their retirement plans as they’re worried they can’t afford to retire.
Almost one in five (18%) of people now plan to delay retirement, according to a survey from Aegon. Seeing pension values fall and the possibility of further volatility on the horizon can make it seem as through retirement plans have gone off track. However, this isn’t necessarily the case and you may still have enough to retire on.
Before you access your pension or delay your plans, it’s important to assess your own circumstances.
How has the market volatility affected your pension and other assets?
You no doubt saw headlines about stock markets ‘crashing’ and ‘sharp falls’ earlier this year. It can be alarming to read these, especially if you’re nearing retirement.
However, these headlines focused on the stock market alone, and investment portfolios typically hold a range of assets, including bonds and cash. As a result, these assets can act as a buffer when stock markets are volatile. Most pension funds will automatically reduce investment risk as you approach retirement age too. So, you may have been less exposed to the volatility than you first thought.
While your pension and other investments may have dipped, it’s unlikely they did to the extent headlines suggest. The first step should be to review your own pensions and their current value.
Knowing that your investments are lower in value than at the beginning of the year can be disheartening. However, when you take a long-term view, you’ve still benefited from saving into a pension, thanks to investment returns, tax relief, and employer contributions.
Before you make any changes to retirement plans, you should take stock of pension values.
How much is enough to retire on?
The next step is to understand what you need so you can afford to retire.
There are numerous factors to take into consideration here, including your desired lifestyle and life expectancy. You need to calculate how much you need annually throughout retirement.
Often retirees find their general outgoings fall, as they are no longer commuting to work and may have paid off the mortgage, for example. However, there may also be big one-off expenses to consider too. Perhaps you’re hoping to travel more, help children financially or renovate your home?
This is a time to think about what kind of retirement lifestyle you want and the goals you’d like to reach.
Once you’ve thought about your lifestyle, you should consider how this matches up with your pensions and other assets. It can be difficult to understand how the lump sum in your pension will provide a regular income and whether it’s enough.
This is where financial planning can help. We’ll help you see how your savings over the years translate into a retirement income that you can rely on for the rest of your life – whatever your lifestyle and aspirations.
Considering market volatility when you’re retired
Since 2015, Pension Freedoms have given retirees more choice. You can now access Defined Contribution pensions in several ways.
This includes drawdown, where you can make withdrawals when it suits you and the remaining amount stays invested. Your pension remains exposed to the market thereby giving your savings a chance to grow further while you’re retired. While this flexibility has proven a popular option among retirees, it also means you need to consider potential market volatility while in retirement.
The recent market activity has highlighted how volatility could affect retirement plans. If you intend to remain invested throughout retirement, it’s important to understand the impact and how you should manage short-term volatility. Again, this is an area we can help you with. It’s a step that can give you confidence as you head into retirement.
Please note: The above is offered only for general informational and educational purposes. It is not offered as and does not constitute financial advice. You should not act or rely on any information contained in this comment without first seeking advice from a professional.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future,