No-one is enjoying the Coronavirus or the impact it is having on financial markets. But perhaps there is no group that’s worrying more than those who were hoping to retire in the near future. Many will be wondering if they need to rethink their plans.
Here are four key considerations for those approaching retirement:
1. Be flexible. For many, the prospect of having to work a bit longer may be disappointing. Others may consider it a nice problem to have because the economic fall-out from the current crisis will most likely lead to a reversal of the long period of falling unemployment we have enjoyed in recent years.
Perhaps this is a good time to think about phasing retirement, moving down to three or four days a week, rather than hanging your boots up all in one go. Not everyone will have the luxury of being able to choose how they withdraw from the workplace but, for those who can, a stepped retirement is probably a healthier approach anyway.
2. Put in place a cash buffer. Falling stock markets are only really a problem if you need to access money NOW. Everyone else can afford to wait for things to improve and markets to recovery their poise. The best way to avoid becoming forced to withdraw your retirement funds when there is a dip in value is to make sure that you always have enough ready cash to tide you over a difficult period in the market.
There is no correct answer to the question ‘how much?’ That will depend on how long the market takes to recover. After a really savage bear market this might even be a few years. But having enough money set aside to cover a year’s essential outgoings will ensure that you don’t need to withdraw your funds at the worst of all times.
3. Don’t fixate on your account balance. At times of market stress, many of us develop a self-preservation instinct when it comes to monitoring the value of our pension. We simply refuse to look at our accounts. This might sound like a head-in-the-sand approach but there is actually some merit in it. If you have no intention of withdrawing, then you don’t really need to know how much money you have lost on paper. It’s irrelevant.
4. Learn from the past. In the heat of the moment, it is tempting to think that markets will never bounce back. But in reality, we are rarely ‘all doomed!’ Look back at the periodic stock market crashes over the years and you will see that markets have always come back in due course. Sometimes a lot more quickly than people expected at the time.
The stock market crash of 1987 is the really memorable example of this. At the time it was the scariest moment investors had experienced since the fabled crash of 1929. But the stock market actually ended the year higher than it had started it. Look at a long-term share price chart today and it can be quite hard to imagine the trauma of 1987 - it looks rather insignificant against the great upward sweep of the market, although if you were there it wasn’t!
Important information: The value of investments can go down as well as up, so you may not get back the amount you originally invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.