Improve Your COVID-19 Retirement Planning With These Tips
Keep in mind that retirement savings are long-term. The Coronavirus (COVID-19) is having a widespread impact on all elements of financial life, including retirement plans. The current turbulence in the global stock market, as a result of COVID-19, will undoubtedly be of concern to people whose retirement savings are partially or fully spent during these volatile market conditions. However, making decisions based on what is happening in the short term can be risky. It may be tempting, for example, to consider transferring all of your investments to cash or other lower-risk investments, but by doing so, you not only insure the loss as a result of recent declines, but you may also miss the opportunity the value rises again, for which you would also lose in the long run.
Here are our tips on how to navigate these tough times.
Allow time for markets to recover
It is very important to remember that retirement savings are long-term. If you are young and paying a pension at the workplace, then you have time for your pension fund to achieve long-term growth and recoup the losses caused by the volatility that is now being experienced in the stock markets. You don’t need to worry too much, as you have many years of work to come, and this will provide time for the markets to recover before you are ready to take your retirement income.
If you are older and closer to retirement, you may have seen your funds “roll over.” 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 offer an automatic lifestyle.
The reality of buying an annuity now
An annuity is a retirement income product that you buy with some or all of your pension fund. Pay regular retirement income for life or for a set 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 new emergency response to the coronavirus pandemic, reducing it from 0. , 25% to 0.1. %. This has meant that annuity rates have also fallen.
If you are still thinking of securing an income by purchasing an annuity, current volatility indicates the importance of gradually reducing the risk in your portfolio as you approach the anticipated purchase date of the annuity. Doing so provides greater certainty about the lump sum you will have available to purchase your annuity, which in turn will give you clarity on exactly how much guaranteed income you can expect to get from the fund.
Drawdown
Drawdown is a way to take money out of your pension to live in retirement. You must be 55 or older and have a defined contribution pension to receive your money this way. You keep your retirement savings invested when you retire and withdraw money (or “withdrawal”) from your pension fund. If the last few months have taught us anything, it’s that stock markets can be quite volatile, so because your money remains invested, and is generally in the stock market, if you select reduction, you will have to be sure of that the markets and the value of your pension could go up or down. The advantage is that the investment growth can provide higher returns and see your pension amount continue to increase in value even though you are earning an income from it.
If we continue to see a prolonged period of negative investment returns, and you are already using the downside or intend to go downstream shortly, you may also want to avoid taking out more than necessary while stock market values remain depressed. . The more you can leave, the more benefits you will get over time once there is a recovery.
Keep making contributions
If you’re still in the process of saving for retirement, this might be a good time to think about increasing your pension contributions. Even though there is short-term volatility in the markets, increases in long-term contributions can make a big difference in the value of your eventual retirement fund, especially if it coincides with a recovery in the market.
Stagger your retirement
A new study [1] has shown how many retirees choose to stagger their retirement, moving part-time before leaving work entirely 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 later life, more and more retirees are learning the benefits of having a larger pension.
Of those who have not reached the bottom of their pension, half (51 percent) say it is because they are still at work, while more than a quarter (25 percent) of those who are 60 years old say it is because they need their pensions to last so long. it’s possible.
Naturally, retirees who have not yet reached their pension fund must have alternative sources of income. When asked about their income, almost half (47 percent) said that they obtain income from savings, others depend on the income of their partner or spouse (35 percent) or the State Pension (22 percent) , while 12% depend on the income of the 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 length of time you have until retirement. Above all, before making important decisions about your pension, seek 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 your options, and make a balanced assessment of your risks.
Ellis Bates Financial Advisors are independent financial advisers with offices throughout the UK. They manage over £ 1 billion in assets on behalf of clients, which have given them a 4.9 / 5.00 rating with Trustist. 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 can fluctuate and decline, which would have an impact on the amount of pension benefits available. Pensions are not normally 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 can go down. You may not get back the amount invested. Past performance is not a reliable indicator of future performance. Making withdrawals can erode the capital value of the fund, especially if investment returns are low and you are earning a high level of income. This could result in a lower income if an annuity is purchased.
