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Thinking ahead

The coronavirus (COVID-19) pandemic has touched virtually every part of our lives and is having a widespread impact across all aspects of financial life, including retirement plans.  

As a result, a significant number of people aged over 50 and in work are potentially considering delaying retirement (15%) by an average of three years, or will continue working indefinitely on a full or part-time basis (26%), as a direct result of the COVID-19 pandemic, according to new research[1]. The findings also suggest that people, particularly those who have been furloughed or seen a pay decrease, would benefit from a financial review to assess their options before changing their plans. 

Delay retirement 

Data from the Office for National Statistics currently shows the number of workers aged above 65 years is at a record high of 1.42 million[2]. However, if people change their retirement plans in response to the pandemic, this could increase considerably.  

While, on average, those who plan to delay their retirement expect to spend an additional three years in work, 10% admit they could delay their plans by five years or more. These figures are significantly higher for the 26% of over-50s workers who have been furloughed or seen a pay decrease as a result of the pandemic. 19% of these workers will delay, and 38% expect to work indefinitely. 

Future plans 

Some retirees nearing retirement age might need to be flexible with their plans for the future. It’s uncertain just how long it will take for life to return to normal, and while some people may still be able to retire right on schedule despite the COVID-19 crisis, others may need to postpone retirement or are forced to consider retiring early. 

As a result, the impact of COVID-19 on stock market performance may also be leading some retirees, and those close to retirement, to question their investment strategy. But what’s the right approach? Understandably, the impulse to react – and to protect what we have – is strong. 

Regular revision 

Retirement planning, and financial planning in general, are not one-off exercises. It’s better to think of them as fluid and requiring regular revision. Attempting to time the market and avoid volatility by making dramatic changes to your portfolio can cause harm to your long-term investment results. 

With many areas of the global economy coming to an abrupt halt, markets have fluctuated between gains and declines as investors weigh the potential impact of massive stimulus initiatives by governments and central banks. 

Economic uncertainty 

The barrage of news is unrelenting. On a daily basis, we hear about new COVID-19 cases, job losses, economic concerns and oil price shocks, to mention just a few. But selling out of the market during periods of economic uncertainty, and crystallising losses, can have a major effect on your long term investment targets. Staying invested means you’ll be able to benefit from any potential recovery, and it helps to remember that volatility is normal with stock markets. 

To give yourself the best chance of achieving your retirement investment goals, the right mix of asset classes is essential. An effective strategic asset allocation is one that takes enough risk to give your portfolio the potential to grow, but not so much that you feel uncomfortable – and therefore making you more likely to withdraw funds at the wrong moment.  

Retirement options 

Whether you decide to postpone retirement or retire early depends on your situation. If your pensions and savings have been impacted over the last few months, delaying retirement to give yourself more time to prepare may be a better option. You could also look to reduce your working hours to phase into retirement, working past your initial retirement date. 

On the other hand, if you lose your job and don’t know when you’ll be able to find another one, you might choose to retire earlier than you’d initially planned. If you have plenty of savings set aside, you may be able to enjoy a comfortable retirement. Otherwise, you might choose to go back to work in a few years when suitable jobs are more readily available to build a stronger retirement fund. 

Making the best decision for your situation 

Whatever you decide, make sure you’ve looked at all available options and thought about the advantages and disadvantages of each so you know you’re making the best informed decision for your situation. For further information, or to discuss your circumstances, we’re here to help you. 

Source data: 

[1] Opinium Research for Legal & General Retail Retirement ran a series of online interviews among a nationally representative panel of 2,004 over-50s from 15–18 May 2020. 

[2] Office for National Statistics, Labour market overview, UK: May 2020 

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN IN VALUE AS WELL AS UP. YOUR EVENTUAL INCOME MAY DEPEND UPON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION. 

Neil Dobson FPFS
Chartered Financial Planner
Wealth Manager
e: neil.dobson@sgwealthmanagement.co.uk
t: 01603 760866

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