Most people will have seen stories in the press, online and on television covering the recent falls in the value of the world’s stock markets and in particular on the FTSE, the main UK market.
The FTSE 100 peaked at 6,840 on the 22nd May; a month later following almost daily falls, today it currently stands at around 6,050. That’s a drop of approximately 10% in a month, which could make a real impact on your income if you are about to give up work.
Some of the more sensationalist headlines don’t help would-be retirees who are of a more nervous disposition either. The main headline in the Daily Express on Friday was particularly scary as it screamed: “Pension blow for millions as £48billion is wiped off share values.”
Enough to put anyone off their eggs and bacon as they read their morning newspaper!
So does this affect you?
That all depends on whether you have a pension and where it is invested.
Whilst very few people have all their pension savings invested directly in the FTSE 100, most savers have a proportion held in shares of some sort. If this applies to you it means that in all likelihood the value of your fund will have dropped over the past month.
If you are some way off retirement this probably isn’t a problem and you can put it down to the normal rollercoaster of investing in shares. Indeed you could argue the right time to top up your pension is after a stock market fall like we have seen over the past few weeks.
However, the closer you get to retirement the more of an effect the falls will have on your pension income, after all you have less time for your pension to recover any lost value.
What should I do if I am retiring soon?
If you are planning on retiring soon then there are some practical steps you can take:
1. Firstly you need to confirm the extent of any loss. How much has your fund dropped? Things might not be as bad as you think
2. Then confirm what difference it will make to your retirement income, do you still have enough to live on?
3. You now have to make a decision. If the value of your pension fund has fallen you may want to consider delaying retirement? Other factors, such as whether you want to actually carry on working, movements in Annuity rates and whether you have other capital need to be factored into your decision.
Remember too that waiting for a short term rise in the stock market can be a dangerous game. At the end of the day the value could fall further, increasing the size of the problem.
Much depends on how you view your pension, after all share prices have broadly only fallen back to where they were at the start of the year.
Whatever you choose to do, the recent fall, correction, slump, (whichever word you use to describe the recent stock market activity) shows the importance of considering moving your pension fund to safer assets, such as Cash, in the months and even years leading up to retirement.
Whilst doing so now is probably too late, the horse has bolted, if you have time to let the value recover, moving to Cash at a later date, might save you from the current situation repeating itself just before you retire and will hopefully mean the inevitable tabloid scare stories won’t give you sleepless nights.
Do you need help planning for your retirement?
Our team of Independent Financial Advisers in Nottingham are experienced in developing retirement income strategies for clients the length and breadth of the UK. We can help you with the timing of your Annuity purchase to help maximise your income in retirement.