9 tips to protect your pension plans when markets are falling

Imagine you’ve spent your entire working life building up your pension pot and then, just as you’re ready to retire and enjoy it – the markets fall.

You see your pot shrink as markets slide, and all your retirement plans vanishing with your wealth. 

Right now, with the unsettled economic outlook on one hand and the value of cash being eaten into by inflation on the other it is a problem that many people are facing.

But there are some ways to protect your pension and look forward to a potentially comfortable retirement, even in times like these. 

1. Plan ahead

Simply accepting the situation is not the answer. If you have not yet retired, you may be able to make some changes to your current arrangements to make your outlook brighter. 

So the first step is to get an illustration of your current pension prospects from your pension provider. It may be better or worse than you were expecting – but it will mean you have a clearer idea of what you will need to do.

2. Look at what you need

With the mortgage paid off and no more commuting, you will probably need less income to afford the kind of lifestyle you enjoyed before you retired. Figures between 50% to 80% of your pre-retirement income are often mentioned. But you may not need that much. Make a personal budget. You could find that your pension pot will go further than you first thought.

3. Cut the costs

There’s no need to spend on things you don’t need. Cut back on discretionary items like TV subscriptions and put your thermostat down a degree or two. Shopping in Lidl instead of Waitrose might make sense – and don’t forget that turning 60 means a whole range of concessions, from free prescriptions to reduced fares on public transport.  

4. Ditch the debt

What about debt? If you still have any, pay down what you can. The interest you pay on debt built up in the past is money that you will not have to spend in the future. All debt can be serious, but credit cards are a particularly costly luxury – they should only be used in an emergency. Living debt free could make retirement a great deal more comfortable.

5. Up your contributions

The concessions so generously provided by the taxman can make your pension one of the most tax efficient investments you will ever make. Even if you have only a few months left to pay into it, making the full contribution allowed (which can be as much as you earn, up to a maximum of £40,000 each year) could boost your pension pot.

6. Look at your other investments

If you have other investments, you need to look closely at them and at how they could make a difference to your pension plans. Are they invested for growth or for income? Your priorities may change after you retire. The way your money is invested may need to change too.

7. Delay your retirement

A few extra years of employment can greatly enhance your retirement, as any online pension income calculator will demonstrate. So, if you haven’t retired yet but can put it off a while longer, just until the economic climate improves, it might be worth delaying. If you have already retired, you could consider a return to work on a part-time or on a freelance basis to give your pension savings more time to grow.

8. Use drawdown

If you choose the traditional way of using a pension pot – to buy an annuity – you may be at a big disadvantage when markets fall and annuity rates are depressed.

But you don’t have to use an annuity.  With a drawdown you dip into your pension pot as you need it, and leave the rest invested. So your pension pot could grow again if the markets recover.

Some years will inevitably mean better returns than others. When they do well you might afford to take out a little more. This year, with a bear market, the new car and the foreign holiday may have to wait – next year could be better, and your pension pot could swell again. Set yourself a floor and a ceiling based on what you can’t do without, and with careful use of drawdown your pension pot might still provide the kind of lifestyle you wanted.

You can use a combination of annuity and drawdown if you wish.

9. Get some expert advice

But perhaps the most important tip of all is to get expert advice.

At Continuum we can look at your current pension pot, and help you plan a strategy which will help you make the most of it.

One of our expert advisors will take a holistic view of your circumstances to help you retune your plans and ensure that you’re best able to make the most of your retirement wealth and can meet your retirement goals.

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. Pension income could also be affected by interest rates and currency fluctuations at the time benefits are taken.

The value of an investment can go down as well as up,when investing your capital is at risk.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable retirement strategy, you should seek independent financial advice before embarking on any course of action.

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