Keep in mind that retirement savings are for the long term. The coronavirus (COVID-19) is having a widespread impact on all elements of financial life, including retirement plans. The current global stock market turbulence, as a result of COVID-19, will no doubt be of concern to people whose retirement savings are being spent in part or in full during these volatile market conditions. However, making decisions based on short-term events can be risky. It may be tempting, for example, to consider transferring all your investments to cash or other lower-risk investments, but by doing so you not only insure yourself against loss as a result of recent declines, but you may also lose as a result of the value rising again, for which you will also lose in the long run.
Here are our tips on how to navigate these difficult times.
Give time for markets to recover
It is very important to remember that retirement savings are for the long term. If you are young and paying a workplace pension, then there is time for your pension fund to achieve long-term growth and recoup losses caused by the volatility now being experienced in the stock markets. You shouldn’t worry too much, as you have many years of work ahead of you, and this will give the markets time to recover before you are ready to receive your retirement income.
If you’re older and closer to retirement, you may have viewed your funds with a “lifestyle.” This means that your pension will have been transferred to generally less risky funds and invested in ‘safer’ areas such as cash, gilts or bonds, which are lower risk and generally provide a fixed rate of return. The older you get, the more pension plans tend to invest in these assets to limit investment risk. But, not all pension plans provide an automatic lifestyle.
The reality of buying an annuity now
An annuity is a retirement income product that you purchase with some or all of your pension fund. It pays a regular retirement income for life or for a certain interval. If you intend 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, lowering it from 0.25% to 0.1%. % This has meant that annuity rates have also fallen.
If you’re still thinking about securing an income by purchasing an annuity, today’s volatility indicates the importance of gradually reducing the risk in your portfolio as you get closer to your anticipated annuity purchase date. Doing so provides greater certainty about the lump sum you’ll have available to purchase your annuity, which in turn will give you clarity about the exact amount of guaranteed income you can expect to earn from the fund.
Reduction
Drawdown is a way to take money from your pension to live on in retirement. You need to be 55 or older and have a defined contribution pension to get your money this way. You keep your retirement savings invested when you withdraw and withdraw money (or ‘withdraw’) from your pension fund. If the last few months have taught us anything, it’s that the stock markets can be quite volatile, so because your money stays invested, and it’s usually in the stock market, if you select the drawdown, you’ll need to be sure that the markets and the value of your pension could go down as well as up. The upside is that investment growth can provide higher returns and keep your pension fund growing in value even though you earn income from it.
If we continue to see an extended period of negative investment returns, and you are already using the drawdown or intend to move to the drawdown soon, you can also avoid taking out more than necessary while stock market values remain low. The more you can leave, the more you will benefit over time once there is a recovery.
keep making contributions
If you’re still in the process of saving for retirement, now might be a good time to think about increasing your pension contributions. Although there is short-term volatility in the markets, long-term increases in contributions can make a big difference in the ultimate value of your retirement fund, especially if it coincides with a market recovery.
prepare your retirement
a new study [1] has shown how many retirees choose to stagger their retirement, moving part-time before leaving work altogether to ensure their pensions last as long as possible after they fully retire. With people living longer and with the added prospect of long-term care costs in adulthood, retirees are increasingly aware of the benefits of having a larger pension.
Of those who haven’t touched their pension fund, half (51 percent) say it’s because they’re still working, while more than a quarter (25 percent) of those in their 60s say it’s because they need their pensions. pensions to hold out as long as possible.
Of course, retirees who have not yet hit the bottom of their pension must have alternative sources of income. When asked about their income, nearly half (47 percent) said they derive income from savings, others rely on their partner or spouse’s income (35 percent) or State Pension (22 percent), while 12 percent depends on the income of the property.
Professional financial advice counts
If you’re nearing retirement, the amount of exposure you have will reflect both your attitude toward investment risk and the length of time you have until retirement. Above all, before making any important decisions regarding your pension, obtain professional financial advice.
And there is no need to fear: at this stage, we do not know what the long-term consequences of the coronavirus will be. An advisor can help you focus on what’s important, weigh all of your options, and make a balanced assessment of your risks.
Ellis Bates Financial Advisers are independent financial advisers with offices throughout the UK. They manage over £1 billion in assets on behalf of clients, who have given them a Trustist score of 4.9/5.00. https://www.ellisbates.com/about/reviews/
For more information visit their website http://www.ellisbates.com
Source of information: [1] LV= survey of more than 1,000 adults over 50 with defined contributions — February 25, 2020
A pension is a long-term investment. The value of the fund may fluctuate and may decline, which would have an impact on the amount of pension benefits available. Normally, pensions are not available until age 55. Your retirement income could also be affected by interest rates at the time you take your earnings. The tax consequences of pension withdrawals will depend on your personal circumstances, tax laws and regulations, which are subject to change. The value of investments and the income derived from them may decrease. You may not get back the amount you invested. Past performance is not a reliable indicator of future performance. Taking withdrawals can erode the value of the fund’s principal, especially if investment returns are low and a high level of income is being taken. This could result in a lower income as long as an annuity is purchased.
