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Can you still...

30 April 2020

3 min read

Can you still retire soon?

If you’re nearing retirement, the recent market volatility might leave you feeling anxious.

Matt Lewis
Matt Lewis,

Chartered Financial Planner

How much can you withdraw

Based on historical data, a safe withdrawal rate is typically around 3.5-4%. This is for a well-balanced portfolio. The aim is to sustain an income for 30 years and prevent you running out of money.

If your expenditure is above 4%, this might be sustainable with a higher level of risk. However, it comes with additional warnings, especially through periods of market stress.

It can be a worrying time if you need your pension savings to meet living costs during a downturn. This can exacerbate losses since you are forced to sell assets at depressed levels to maintain the same income. This term is known as pound cost ravaging and can have a detrimental effect to the longevity of your portfolio.

Review your portfolio and consider alternatives

If you need to withdraw more than 4% of your portfolio, look at this as a short-term fix and make sure you review this regularly. If you can, consider other income sources during periods of volatility.

Some questions to ponder include:

  • Are you eligible to start drawing your State Pension? Will that relieve some pressure?
  • Do you have any other income sources? Such as:
    • rental income
    • defined benefit (final salary) pensions
    • continued ad-hoc work
  • Do you cash reserves to call upon in case of further market drops?

Control your expenditure

Have you considered how much you will need in retirement? Going through bank statements is often a task that drops to the bottom of the to-do list, yet this can be a real eye-opener. Try and work out your likely spending levels. Are you planning on travelling? Is that going to be one big holiday a year or a six-month expedition?

Now link this back to your investments. Is your expenditure higher than the amount that your portfolio can generate?

With the current lockdown restrictions, you’ll certainly be spending less with restaurants and leisure activities unavailable. Therefore, look at your outgoings before the pandemic struck for a more realistic budget.

Drawing income

Your portfolio might well have a variety of different constituents. So drawing from the right pot, at the right time will be imperative to prevent any unexpected tax bills. Your investments might be held within a pension, a Stocks & Shares ISA, in cash or even an investment bond. All of which have different tax rules and methods of withdrawing.

Using a SIPP (self-invested personal pension) as an example. It is possible to draw down up to 25% of the value as a tax-free lump sum. There’s merit in this approach as you can draw on some funds and live from the proceeds whilst allowing the portfolio to rebuild over the coming years. However, if you can, it’s best to avoid selling assets at these lower prices. It might make more sense to draw down just enough to cover the next 12-24 months, leaving some of your tax-free cash invested to grow.

With the ongoing coronavirus uncertainty, being more flexible with how you draw on funds will be the sensible choice.

The changing face of retirement

Since the introduction of pension freedoms, there has been a massive change in the nature of retirement. We don’t see quite so many ‘sudden’ retirements as we used to. Stopping work on the Friday and being retired on a Monday has been replaced by a gradual retirement. Often in the form of a reduction in working days, possibly some form of consultancy or even a non-executive role.

Retiring soon

If you’re approaching retirement it pays to be prepared. Please email us at enquiries@eqinvestors.co.uk to find out more about how we can help you.

Alternatively, you can book a free telephone or video consultation here. You can also download our guide to retirement.

 

Matt Lewis

Matt Lewis


Chartered Financial Planner

Matt has been part of the EQ team since 2015 as a Financial Planner. He is recognised as a Chartered Financial Planner and holds the Investment Management Certificate. Over the last 10 years Matt has been advising private clients on a holistic basis, taking into account their investment, retirement and protection needs. He believes that an extremely high level of knowledge of financial planning is essential to ensure that the best level of service can be received by his clients. Outside of work Matt enjoys sport, being a regular skier, runner and triathlete. He has completed various marathons and the Wales Ironman Triathlon.

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