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Retiring in a pandemic – a financial adviser’s guide

HL Financial Adviser Bradley Clark explores how the pandemic could affect those in retirement, and those approaching it.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

For some the pandemic has put life on hold. For others, it might have even changed their plans.

Historically, retirement has been thought of as a cliff-edge.

You worked until age 60 or 65 and then retired on a pension for the rest of your life.

But for lots of people, it’s no longer that simple and there are lots of things to think about – this now includes how the pandemic could impact your retirement.

This article isn’t personal advice. If you’re not sure if a course of action is right for you, ask for financial advice. Tax rules can change, and the value of any benefits depend on your circumstances. Unlike cash, all investments and any income from them fall as well as rise in value, so you could get back less than you invest.

1. Already in retirement

For those of you already in retirement, the impact of the pandemic will largely depend on what income you’re currently getting and whether it’s secure or not.

An example of a secure source of retirement income is the State Pension.

Chancellor Rishi Sunak recently announced in the Budget the ‘triple lock’ on State Pensions will remain untouched.

The income you receive from the State Pension is essentially guaranteed to continue for the rest of your life, thereby making it ‘secure’.

Secure income could also come from things like a final salary pension or annuities.

For any secure income sources that are already in place, the pandemic should have limited to zero impact on how much income you’re getting.

However, the same can’t be said for your ‘unsecured’ sources of income.

These are things like income from an Income Drawdown arrangement, rental income, dividends and interest received from investments and cash in products like ISAs.

As global economies have shut down and businesses have made less money, dividends on the whole have reduced. While they’ve returned in some areas of the stock market, the future is still uncertain which makes planning trickier. For those who rely on dividends for income, this could present a problem.

So what can you do to help protect your retirement income?

Make sure you have an emergency fund so you can quickly access cash when you need to.

We normally recommend 3 to 6 months of normal expenditure. But if you’re retired, then you should hold more. We think it’s a good idea to hold around 1 to 3 years’ worth of expenditure if you’ve finished working. You might want to hold even more depending on your circumstances, for example if you rely on less secure income like dividends.

Although cash is unlikely to give you much in the way of income at the moment, it’s important to make sure you have a buffer in place. This can help to shelter you from any losses, or act as a back-up for any unforeseen events.

If you’ve been spending less during the pandemic, you could consider using this as an opportunity to boost your cash reserves?

2. Approaching retirement

For those approaching retirement, the pandemic might have a bigger impact on your plans.

If you’re thinking;

‘If I retire now, what would I do with my time anyway?’ or ‘Should I simply continue working and wait until I can enjoy my retirement as I had always planned?’, you’re not alone.

Everybody’s retirement is different and what works for one person might not work for another.

However, there are some things you can do to help you with your plans depending on your current situation:

  • If you’ve been working from home over the past year and you feel as though you’ve enjoyed the extra time back – not spent commuting for example – you might want to see if you can work part time. You could start by cutting back 1 to 2 days per week to see how that works for you.
  • If you’ve been furloughed and you’re now earning less, you might want to think about holding off on accessing your pension if you can afford to – that’s what your emergency cash fund is for. Depending on how much you want to access and the pension option you choose, you could end up limiting what you can pay-in in future. Or even settling for a tax-free cash amount that could potentially increase between now and when you were actually planning to access it.
  • If you’re not sure about your options, or you’d like to talk them through with someone, you can always speak to a financial adviser. It can be particularly helpful if your circumstances have changed recently.

Remember money in a pension can’t normally be taken out until age 55 (57 from 2028), when up to 25% is usually tax free with the rest taxable.

To find out more about your retirement options, you could get free impartial guidance from the government’s Pension Wise service. Or if you’d like personal advice, you could ask for financial advice.

3. More than five years away from retirement

If you’re more than five years away from retirement, the pandemic could affect the amount you contribute towards retirement.

Lots of us are spending less as we’re staying at home more, and not spending on things like dining out and commuting. You might find yourself in one of these two categories however:

  1. You have continued earning so can now save more
  2. Your earnings have reduced or stopped so your savings are going down

If you’re in the first group, you could think about increasing the amount you save into a pension. This could not only boost the potential tax relief you can get, but also lead to an earlier than planned retirement. Remember money in a pension can’t normally be taken out until age 55 (57 from 2028).

If you’re in the second group, the opposite might be true. It could be worth temporarily reducing or stopping how much you’re putting into your pension.

Whichever you fall into, use our Pension Calculator to help understand what impact increasing or decreasing contributions could have on your eventual retirement.

There’s no one-size-fits-all when it comes to retirement

If you find that you’ve been impacted by the pandemic, and you’re not sure about your retirement options, you can always speak to an adviser.

If you’re wondering if advice is right for you, and what the cost of advice would be, you can speak to our Advisory Helpdesk. They’re there to answer your initial questions, although they won’t give you any personalised advice. If you decide advice is right for you, they can pass your details onto one of our advisers who can then speak to you about your personal circumstances.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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