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Business owner? Why good planning means you won’t have to delay your retirement because of Covid-19

Has the coronavirus pandemic changed your retirement plans?

If it has, you’re not alone. New research from Legal & General has found that as many as 1.5 million workers aged over 50 could delay their retirement as a direct result of the Covid-19 pandemic.

L&G found that 15% of over-50s planned to delay their retirement by an average of three years due to the impact of the virus, while 26% planned to keep working on a full- or part-time basis indefinitely.

L&G Retail Retirement CEO, Chris Knight, says: “The financial impact of the Covid-19 pandemic seems to be particularly pronounced for people aged over 50 who are still in work.

“While some people will choose to work for longer, or indefinitely, the key consideration when it comes to this research is that it seems this decision has been driven by the financial impact of the pandemic, rather than personal choice.”

In recent weeks and months, it has been the case that stock market volatility has seen the value of portfolios shrink. But, does that really mean you need to postpone your retirement?

3 reasons the pandemic should have no impact on your plans

Commenting on his firm’s research, Chris Knight from L&G adds: “Seeing a material impact on your household income will naturally lead to pessimism about achieving your retirement goals.

“While it would be naïve to say that these financial issues will not have an impact on people’s ability to retire, it’s important for people to have a strong understanding of the options available to them before concluding that their retirement needs to be delayed or forgotten indefinitely.”

This final comment is key. It might be easy to see a fall in stock markets and immediately assume that you’ll have to work longer or postpone your plans. However, the truth can be very different – and here are three reasons why.

1. Your retirement plan should be about your life, not your money

When you’re formulating a plan for retirement, it’s important not just to think about “can I afford to retire?” but also “what do I plan to do once I retire?”

Your retirement could last 30 or 40 years or more, and so it’s vitally important to think about what you want to do when you stop working. Do you want to travel? Spend more time with the family? Start your own business?

If the pandemic has affected the value of your pension, and you’re not as sure that you have ‘enough’, maybe it’s your plans that need to change, and not your retirement date?

Considering restrictions on travel, a fortnight abroad this summer may not be possible anyway. So, how about scaling down your plans and having a two-week ‘staycation’ instead?

You may find that you can still finish work as planned, but that you make small cutbacks in your planned expenditure in the short-term while markets recover.

2. Financial planning is designed to take bumps in the road into account

Much of the work we do as financial planners involves mitigating risk. This isn’t just investment risk (more of which in a moment) but other types of risk too.

For example, making sure you have the right life, income and illness protection in place reduces the financial risk of an unexpected shock, such as an accident or serious illness.

Good long-term financial planning is designed to take periods of volatility into account. A financial plan is constructed assuming that there will be blips along the way – whether this is a period of unemployment, some unexpected expenditure, or a period like we’ve seen where stock markets are experiencing record rises and falls.

And, financial planning doesn’t end on the day you retire. Your planner will continue to work closely with you to ensure that your retirement income remains sustainable.

Your planner can advise you on strategies to take income so you can maintain your desired lifestyle for as long as you want – perhaps by considering alternative income sources in the early years of your retirement while markets recover.

Indeed, 2019 research by financial analysts Moneyfacts found that clients accessing pension drawdown without advice are three times more likely to run out of money in retirement when compared to clients who had taken financial advice.

3. The value of your portfolio probably hasn’t fallen by as much as you think

It’s easy to feel pessimistic when you see headlines like:

  • “UK suffers biggest economic fall in 40 years” (Daily Express)
  • “FTSE 100 posts largest quarterly fall since Black Monday aftermath” (Guardian)
  • “Global shares plunge in worst day since financial crisis” (BBC)

Overall, the FTSE 100 fell by around 18% from its highest point in January to the end of June 2020. At its worst, the index had fallen by around 30%, and other indices around the world showed similar declines.

What it is important to remember is that headline falls in stock markets are typically rarely reflected in the value of your own portfolio. This is where working with a financial planner again offers huge benefits.

It’s likely that your planner will have constructed a portfolio to include defensive assets such as cash and bonds, dependent on your personal tolerance for risk. Portfolios are designed deliberately to shield you from significant market volatility, and our clients have generally found that any losses they have experienced have been much smaller than they expected.

As you approach retirement, it’s also likely that your pension savings have been ‘lifestyled’. Lifestyling is designed to ‘lock in’ the investment growth your retirement pot has achieved as you get closer to your retirement date.

As your retirement nears, ‘lifestyling’ sees your funds switched from riskier assets into less risky ones, such as cash or fixed interest. It means your savings are less likely to be affected by market volatility in the run-up to your retirement.

A combination of good financial planning and ‘lifestyling’ could well mean that your retirement is still very much on track, and that your plans don’t have to change because of the pandemic.

Get in touch

If you want professional and expert help to plan your perfect retirement, please get in touch. Email hello@sovereign-ifa.co.uk or call 01454 416 653.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

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