Lowes Magazine Issue 125

RETIREMENT

For anyone planning to retire in 2023, the depression of retirement savings from ongoing market volatility and a recession in the UK may be affecting their decision. Retiring in a recession

Wealth Manager, Michael Dodds offers some options when considering what action to take.

What also matters, is how and in what order we take money out of our retirement assets, as this can have an effect on IHT and passing on our residual wealth to our beneficiaries. So, there is much to consider.

MANY PERSONAL PENSION FUNDS HAVE lost money over the last year as both stocks and shares and bonds have taken hits to their value. This is due to the rarely occurring correlation between these assets in a falling market. Traditionally they work to balance against each other, but in 2022 they became more closely aligned and both have been affected by falling markets. What this means is that for anyone planning to retire in the next year and stop earning, there may be some tough decisions to make. Capital losses in the first two to three years of retirement can significantly affect long term income streams. If the amount we have in our retirement pot diminishes in these years, and money is withdrawn when markets are falling, then we have less money invested and it can be difficult to replace the wealth lost. This means there is less money in the pot from which to take an income. How people proceed with retirement in the current environment will depend on individual circumstances, based on the size and type of their retirement savings, and other savings and investments held.

Here are five options: 1. Reviewing retirement date

This option may not be an ideal solution for anyone looking forward to giving up work. But assuming this is a personal choice rather than a mandatory requirement (for example, for some commercial airline pilots), it’s worth considering, given the economic circumstances, if now is the best time to retire. Temporarily deferring your retirement would mean you could continue to contribute into your pension; whilst investing when markets are down and cheaper to buy. If markets pick up further down the line, you could see greater value added to retirement funds. 2. Phasing retirement Phasing more slowly into retirement, for example by reducing hours and income in steps, means less money needs to be taken from the pensions and investments, again keeping more of the money invested and giving the overall retirement fund more time to recover.

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