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Should you delay your retirement because of Covid-19?
Retirement planning has taken on a new dimension during the pandemic with many big questions being asked, including whether a delayed retirement is the most sensible option for the over-50s. Half of advisers have seen clients defer their retirement as a result of income losses triggered by COVID-19, with Schroders’ latest UK financial adviser survey stating that capital and investment income losses and impact on retirement plans are the top three concerns. Many people have also expressed concern over the impact on their pension.
Research shows that up to 1.5 million workers aged over 50 could delay their retirement by an average of three years due to the impact of the pandemic while more than a quarter (26%) anticipate having to keep working on a full or part-time basis indefinitely. The figures are significantly higher for those over-50s workers who have been furloughed or experienced a pay decrease since lockdown began with 38% expecting to work indefinitely.
The Bigger Picture
While this is obviously a harsh blow to those at such a crucial stage of their retirement planning, it’s essential to examine all options available and work out the true impact on your retirement plans before making any significant decisions.
First, we recommend drawing a clear picture of your total savings to clarify where you stand. This should include your pension pot income, all investments and any other sources of income. In the short- to medium-term, many households have already saved – and will continue to save – a significant amount of capital during lockdown with expenditures such as commuting, wider travel and dining out no longer eating into their earnings. Factor these figures into your financial picture.
In addition, you should think about the products and savings vehicles that could prove most rewarding in the current climate. As people seek out more financial certainty in a volatile market, options such as annuities and equity release may become more appealing. Capital preservation and more active investing have also become more of a priority for many.
The flexibility of drawdown solutions for retirement income is likely to make it more popular now than ever. Consider both the short- and long-term issues with a view to balancing immediate drawdown needs with your longer-term retirement picture and financial longevity.
Investments and Equities
One of the reasons cited by those choosing to delay retirement is giving their investments time to recover from coronavirus-induced market fluctuations. The measure of how much this might impact you individually comes down to how much capacity for loss and diversification is built into your portfolio, and whether you’ve created a risk-appropriate investment structure. All of the above can provide a safety cushion to protect your finances against natural drops in portfolio value.
Figures from Fidelity International shows that almost three-quarters of investors (71%) who plan to retire in the next five years believe they will have to rethink their plans because of the impact of Covid-19. It also shows that almost half (48%) of all pension investors have seen a fall in the value of their retirement savings and a further half are worried their savings will no longer provide them with the level of income they require in retirement.
If your portfolio has lost value, this doesn’t mean you will necessarily need to compromise the quality of your retirement or tone down your goals. Instead, it’s important to focus on building additional savings and analysing your portfolio to position it for higher returns.
This may mean reconsidering both the individual components and overall picture, including how much of your finances are invested in equities and how hard the individual elements of your portfolio will need to work to generate returns – for example, bonds versus equities.
While it might not be as reassuring as a concrete solution, it can also be worth biding your time to see how the markets recover. The equity landscape may look very different in a year or two and delaying your retirement means more time to earn and save whilst adjusting your portfolio to ensure optimum safety and security against future losses.
Many people naturally adopt a more cautious approach to risk the closer they get to retirement but now may be a good time to reassess your risk tolerance, asset mix and expectations in line with your retirement goals and the current economic climate. This might mean reconsidering your equity weighting and asking other key questions where the support and guidance of an expert will prove invaluable questions. Contact our independent financial advisers today to find out how we can support your later life planning.