Retiring in a Crisis:

No one expects to find that, after years of hard work and saving money, their retirement falls just as a financial crisis hits. No one wants the prospect of retiring in a crisis. And least of all one that also has implications for your health. Yet this has been a reality for many people whose planned retirement dates fell from March onward. 

It’s not just about the financial implications either. Retiring in a crisis may throw to the wind any preparatory measures taken. Plans may have to be rearranged, goalposts may have to move – and you may even have found yourself in a position of being pushed into retirement earlier than expected.

Whatever your situation, the issues that arise around retiring in a crisis, show that financial planning is as much about emotions as it is about finance, and all the more so when it involves decisions that will affect the rest of your life.

The Emotions

The first emotions you’ll likely experience when retiring in a crisis go something like this!

  • Confusion – you hear a crisis may be on the horizon and your brain immediately tried to sift through how you are impacted.
  • Panic – the more you hear and read, the more your brain becomes saturated with negative news. It’s unlikely you will be thinking about the positives – your brain will likely be glossing over those in favour of finding out the worst possible case scenario!
  • Anxiety – worry kicks in as you realise you don’t know how badly you are impacted.
  • Disappointment – in the back of your mind, you will probably be experiencing the voice saying ‘I wish this hadn’t happened.’ ‘Why did this have to happen now?’ ‘Why me?
  • Anger – no doubt fuelled by not being able to discern what everything means.
  • Helplessness – you don’t know what it all means, and you don’t know what to do!

It’s not great, is it? No doubt, you will be thinking how nice it would have been if things had remained as they were. But, such musings are ultimately unhelpful. 

When faced with retiring in a crisis, you must move from the inevitable (and very human!) negative cacophony of emotions as quickly as possible. We realise that it is far easier said than done! But it is true that only once you’ve allowed yourself to go through the turbulent emotions, will the calmer ones be restored and will your options be able to materialise.

The Options
1) Hanging in there

You may have a financial plan in place. If it was constructed properly, it will include some inbuilt measures to help offset the negative impact of a financial crisis. So it’s likely that things are not as bad for you as the media would have you believe. 

If you are in this situation, your first point of action is to give your financial planner a call. Good ones (like us! Wink wink) may even have pre-empted your concerns and got in touch. 

Providing your plan was carefully constructed (as they should be!), your adviser is likely to tell you to ‘hang in there and stick to your plan.’ Your plan may mean you are financially prepared to retire and so you can follow through after working so hard to get to this point. You may need to factor in additional measures to ensure you live within the means of the current financial crisis, but retiring during a crisis doesn’t necessarily mean your plans have to go out of the window.

2) Adjusting your plans

Entering retirement in the midst of a financial crisis can be unnerving, and near-retirees may be hesitant to see their plans through. So, it’s important to understand that while you can’t control the markets, you can control how you react to the volatility. 

Adjustments can be made to plans. In fact, your plan should evolve with you depending on your circumstances and financial situation at any given time. So, it stands to reason that during a financial crisis, reviewing your plan, to make sure its on track, is a good idea.

Common adjustments made during financial crises include re-balancing portfolios and tax loss-harvesting. So there are things that can be done by the professionals to ensure you are in the best possible position.

As financial advisers ourselves, we believe the onus should always be on what you can control. So showing clients the actions they can take to make a difference goes a long way to re-empowering them in a situation where they feel the ground is moving away beneath their feet.  

Many things can be done to adjust your plan. You may want to review where your assets are invested. Perhaps you will want to revisit how much you intend to withdraw in the first few years of your retirement to allow time for recovery to come. Then there are also things to consider like how you will adapt the way you spend your money given the situation. 

A financial adviser is worth their weight in gold in objectively weighing this up for you. So, don’t worry, none of this need be as scary as it sounds. Professional advisers are there to take the stress out of difficult financial situations – so if you’re concerned, it might be worth giving one a call before you go it alone. 

3) Re-run the numbers

Time and time again, you’ll hear financial advisers referring to ‘good’ plans. But what does this mean? In short, it means a plan that incorporates market volatility and a potential downfall. It’s a plan that seeks to cover all eventualities as far as (humanly!) possible. So, while no one could have anticipated the current Coronavirus crisis, any plan that did not factor in any potential for a ‘crisis’ was not really a plan at all. In fact, it probably would just amount to a collection of investments.

So, if you are nearing retirement in a crisis, it’s a good idea to re-run the figures in your plan to ensure retirement is feasible right now. Then re-run them again! As financial advisers, we can help stress-test portfolios to see how they would hold up in times of high market volatility. It is something we do for all of our plans – and we are happy to do for new clients with pre-existing plans. 

To re-run the figures then, you should focus on what guaranteed income you will receive during your retirement. The first one that will spring to mind, invariably, will be your state pension, but you should factor in any other income you will have. Then look at the amount of cash you will need to draw from your savings to fill any gaps. 

During a financial crisis, people have a tendency to panic because their perspective is drawn to the larger numbers, and the amount their portfolio is down overall. In reality though, they will probably only need to draw down a fraction of their nest egg to cover the time until it takes for recovery to come.

4) Review your Cash savings

As financial advisers, we always advocate that clients have emergency savings readily available. Typically we recommend that this be around 3-6 months worth of living expenses. During uncertain times though, it’s best (if you can!) to have longer. The idea behind this is plain and simple peace of mind. The cushion an emergency fund gives significantly lowers the chances of the need to sell your investments during a down market and allows you (hopefully!) ample time to ride out the storm to calmer weathers.

5) Review your readiness to retire

Many people look forward to their retirement – and so this idea won’t be for everyone. For some though, a financial crisis as they near retirement is food for thought over their readiness to retire. Some find that they simply aren’t ready to retire. Others will find the uncertainty of retiring in a crisis too unsettling and may wish to continue with some form of work. 

For those who are nervous about ending a source of income altogether during turbulent times, may find continued work a source of comfort. It needn’t be a continuation of your full-time employment either. Many find less intense, or part-time positions that allow them to enjoy a sense of their retirement alongside a steady (albeit lesser) income. 

It’s an important point to note. Retirement isn’t just about how to spend your money. It’s just as much about how to spend your time! 

In conclusion…

Investing is emotion. How can it not be when it ultimately impacts a person’s life savings that they will rely on in old age. Retiring in a crisis is not high up on anyone’s list. But, if near-retirees have followed their financial plans and made the projections, the last step is only to resolve any feelings of fear. 

During a crisis, everyone ‘feels’ that they should do something. And that includes acting on their finances. Yet assuming your plan was strong to start with, then doing ‘nothing’ should be the intelligent thing to do. 

While this is easier said than done, it’s important to look on the bright side. Focus on the freedom that comes with retirement and on the things you were planning on enjoying during it. Immediate plans may have changed, but only temporarily!

 

As always, if you have any concerns about your retirement, please do call us on 01243 767 469. Alternatively, you can email us from our contact page, and an adviser will be in touch. We’re always happy to help!

Written by Ian Barnett

Ian is an experienced Chartered Financial Planner as well as being a Fellow of the Personal Finance Society, with over 25 years’ experience in the financial services industry.  With a broad range of client experience and expertise, Ian specialises in financial matters from Pre-Retirement Planning to Inheritance Tax Planning and all points in between.