Approaching Retirement – Which Way Next:
So, you have found yourself approaching retirement in the current financial situation. It’s probably not what you had in mind, and it’s almost certainly given you cause for concern. No doubt you will have been wondering what the impact on your pension pot will be. You’ll probably also have been contemplating what you should do next. If this is the case, then this blog is especially for you.
Help! My Pension Pot Has Reduced in Value!
We understand that seeing your pension pot reduce in value when approaching retirement will mean your default position will be to worry. But before you do, seek to establish the facts. Armed with these, you will be in the best possible position to know what options are available to you.
It may be that you will need to re-evaluate your plans. If you have other cash savings, for example, you might want to think about using these before taking your pension. It may be that you have other assets other than shares in your pension that you could look to draw on. The longer you can leave any shares alone for, the greater the chance they will have to benefit from market recovery when it comes.
Alternatively, income drawdown may be an option. This gives you greater flexibility and enables you to keep your pension savings invested while you draw down minimal sums for your income as and when you need it.
The key is avoiding large withdrawals when your pension fund is falling, so that it has a chance to recover!
But… I’m already drawing an income from my pension…
If you’re already taking drawdown income from your pension, you may need to re-evaluate your spending. Reassessing your monthly budget will prove invaluable in helping you sift out luxuries versus necessities – and showing you where cuts can safely be made. The emphasis will very much need to be on reducing down the amount you are withdrawing from your pension as much as reasonably possible.
I’m approaching retirement soon, but should I defer?
Whether or not you should defer your approaching retirement will depend entirely on your personal situation. Hearing in the news that the current economic crisis is bad news for pensions may make you think you have no other choice.
In reality though, if you’re in a Workplace pension, these are more often than not bound up in default funds that gradually reduce exposure to the market in the run up to retirement. Generally-speaking, this means that as you approach retirement, larger portions of your pension are invested in “safer’ gilts and bonds to reduce your risk. For many people, this will mean you will still be able to retire with less impact seen on your pension fund.
And that’s why it’s important to establish the facts before you panic.
On the other hand, if you have a Personal Pension or Self-Investment Personal Pension (SIPP), you may well be primarily invested in shares. This means that your pension fund is dependent on the market, and so could be greatly impacted. In this situation, deferring your retirement may be well worthy of consideration, though we’d always recommend you speak to a financial adviser first.
How can deferring my retirement help?
Deferring retirement, ironically, is all about ‘buying time’ in this situation. By delaying your retirement, you are giving your future retirement funds time to recover. Staying invested in shares instead of moving into ‘safer’ investments means you stand the chance of capitalising on future gains when the markets stabilise.
The chances are that you will have been looking forward to your approaching retirement. So, the thought of suddenly having to change your plans and defer it are unlikely to be welcome.
Rest assured though, there are very real advantages deferring retirement in the current situation
For example, phasing your retirement by working flexibly, or part-time could well help you ease into full-time retirement. Often, we hear from clients that the sudden influx of free time, and not seeing the boost to your bank account of a steady wage, can be unsettling and hard to get used to.
Looking for positives and trying to make the most of whatever your situation
Weighing up your options and working out what is best for your approaching retirement is key to its success. And that is true no matter what the economic climate is. There are always other considerations to take into account, which is why it is so important that you take the time to find out what all of your options are.
You will almost certainly want to secure your state pension forecast, for example. This will show you just how much money you can expect to receive from your state pension, and most crucially, when! Armed with this knowledge, it may be that you can delay, stop or reduce withdrawals from your personal pension when your state pension starts, giving the former a further chance to grow.
I need to draw my pension income now, so what do I need to know?
If you need to access your pension pot before such time as the markets recover, it’s important that you think about how to structure your income so that it is most beneficial to you. Again, each individual case will be different, and we can’t recommend strongly enough that you seek expert financial help with this. But there are ways you can use your personal allowance, tax-free lump sums, and ISA withdrawals to reduce your tax implications.
How much will I need to retire?
In the wake of the pandemic, things really have been put into perspective for many people. What really matters? What can we live without? How much money do you really need to exist day-today?
It’s true – these have been difficult times. But they have also been incredibly informative, serving as a reawakening to many on a level not seen by most previous generations. So, while the answer to the question over how much money you will need to retire remains entirely subjective, it is likely that your retirement goals will have changed since before lockdown.
Many people see retirement as a time to travel the world. Yet lockdown and the closing of many country borders will have put paid to many of those aspirations. Having been deprived from close contact to our nearest and dearest may have changed the emphasis you place on spending quality time with the family and meeting their needs.
So, now might well be a good opportunity to revisit your retirement goals to see just how much they have changed. If they have changed, it may mean that you need far less to retire than you had planned.
As we have mentioned throughout, pension planning requires expert knowledge. While none of us want to be approaching retirement during such uncertain times, this is when the experts really do come into their own in helping you stay on track for those hopes and dreams. So, if you’re approaching retirement soon, before you panic, stop! Gather the facts, assess the information and seek help if you need it!
As always, if we can be of any help, please do call us on 01243 767 469. Alternatively, you can email us from our contact page, and an expert adviser will be in touch.
Written by Ben Griffiths
Ben is a financial planner from our Whiteley office. While he specialises in pension planning, Ben is also able to generalise into all other areas of financial planning.