Quite a few of my clients have asked me recently if now is a good time to retire. Of course, there’s seldom a simple yes/no answer and personal circumstances are an important consideration. Nevertheless, I’ve set out a few principles below, that can help with your thinking.
Global stock markets suffered as a result of coronavirus, with volatility expected to remain for some time. I first looked at this impact back in March 2020, just after the lockdown started. And as Aberdeen Investments have recently observed, there’s been ‘an unparalleled hit to company dividends’.
It’s OK to point out, again, that investing is for the long term. But that doesn’t help those who are nearing their retirement date or want to start drawing their pensions now.
Lockdown and subsequent lifestyle restrictions have encouraged many of us to reconsider our finances. According to Aviva, one in ten workers have stopped saving into their pensions altogether or reduced their contributions. While understandable, I would still encourage people to try and maintain at least some contributions, if they can.
I’m mainly concerned here with those that are close to their expected retirement age but that are now considering bringing it forward. If you’re a way off retiring, your decisions are different and discussions will be, too.
Personal Circumstances are Key in Deciding if it’s a Good Time to Retire
Stock market movements affect different people in different ways. If you have a final salary or defined benefit pension plan, you’re in a good place. These pensions are unaffected by market volatility. Seek advice if you have questions about this type of pension plan.
Most of us have personal pension plans, defined contribution pensions, however. These do rely on investments to deliver benefits and when markets tumble, their values tend to as well.
If you are approaching retirement and don’t have time to wait for your investments to recover their value, you still have options.
What are the Options When the Time Comes to Retire?
You can access your personal pension in several ways. Once you reach the age of 55 years, there are 4 ways you can do it and also you can mix and match between them:
- Purchase an annuity – a guaranteed income for life
- Flexible access (drawdown) – keep your pot invested and withdraw money when you need it
- Take it all as cash
- Leave it where it is, wait and see
Let’s consider these options one at a time. Firstly, the annuity. It’s tempting because it takes away dependency upon stock market performance by guaranteeing you a regular income for the rest of your life. However, annuity rates are very low at present, so the income you can get is lower than it would be in better times. So, probably worth delaying a decision on annuities for a while.
Drawdown is another option. If you’re not in one already, you’ll need to decide when to do it, how to take money from your pension and where to invest the remainder of the pot. You need to be comfortable with the notion that the fund you’re drawing down from continues to be invested, so is subject to market volatility.
You can usually take out 25% of your pension pot in tax-free cash. But is now the right time to do this? If the overall value has diminished, so will the tax free sum, of course. So, I always suggest that people considering this ask themselves if they really need the cash now, or if it’s better holding back a while.
Talk to a Regulated Financial Adviser
As ever, for advice that’s specific to your circumstances, please talk to a regulated financial adviser, such as me. I can help you make the best decisions for your particular needs, to help you see if indeed it is a good time to retire right now. Contact me now for an initial discussion.