I read an article from another Financial Adviser recently about how Covid changed retirement for his client Mike.
Mike was an operator in a car factory and along with his wife, they had planned their retirement around their final salary and State Pension Ages.
The problem was Mike suffered from the lung disease Chronic Obstructive Pulmonary Disease (COPD). Not great with Covid-19 spreading.
The Financial Adviser in this case was able to show Mike that he could in fact retire earlier. The result, a happily retired Mike and his COPD has virtually disappeared.
Does Covid mean it’s better to bring forward or postpone your retirement?
I personally have been dealing with a client called David who has had cancer and is still receiving treatment. He has been on long term sick leave but is due to return to his workplace in the office of a major car manufacturer.
He is not keen to return in the current environment as he is more vulnerable to Covid-19 than others due to his low immune system.
We are working on a plan to ensure he has access to his pension earlier so he can retire now and still live the lifestyle he wants.
There are clearly immediate benefits to bringing forward your retirement in the current environment:
- Avoiding contact. Especially if you are forced into the workplace by your employer. Retiring early can reduce the amount of contact you have with others and therefore protecting your immediate health, especially if you have any underlying health conditions.
- Redundancy payouts. With business so uncertain right now, many employers are making redundancies and this could be the time to put yourself forward for voluntary redundancy in order to receive a payout for your retirement.
- Reduced employment opportunities. If you have already lost your job you may struggle to find alternative employment in what is going to be a highly competitive and much changed working environment.
However, Covid hasn’t just impacted the risks to working and the incentives to not work. As we face further restrictions on our daily lives, is there still enough to do in retirement?
Research recently published by the Institute for Fiscal Studies shows that 8% of workers are now planning to retire later than planned. The research also showed that almost a third of older workers have seen their financial situation worsen as a result of the crises.
Some of the reasons people are delaying retirement include:
- Travel and leisure restrictions. Holidays and foreign trips are a key part of most people’s retirement but at the moment you can’t even enjoy a coffee with friends in large parts of the country, so might you just stay working if there’s nothing else to do? A study by Age UK found that 2.9 million over 70s say their mental health has suffered as a result of lockdowns.
- Pension and investment values have taken a hit. There was a ‘Covid crash’ in the stock markets around March time causing many people’s pensions to fall in value.
- Low interest rates. Reducing the income earned on savings and the potential pension annuity you could purchase.
- Waiting for redundancy payments. With redundancy on the horizon, a final payout from your employer could be a significant boost to your retirement funds.
Does Covid really change anything at all though?
So, whilst Covid-19 has clearly had a huge impact in all areas of our lives, the fundamental process you need to go through when deciding when is the right time to retire has not changed.
Yes, your finances may have suffered but actually it might not be as bad as you first thought. Stock markets have recovered strongly, and your pensions might be more flexible when it comes to withdrawals than you think.
If you want to know if retirement is still right for you this is what you need to do:
- Think about your lifestyle in retirement and all that you want to do. Yes it will be more restricted in the short term but this is just a blip in your 30 year retirement!
- Work out the spending you will be doing in retirement and this will help you understand what income you need in retirement. Don’t forget to factor in inflation as prices will rise over time and therefore your income needs to rise too!
- Understand and consolidate (if appropriate) your pensions. Work out how much income they can provide you with.
- Put in place an appropriate investment strategy that is aligned with the risk levels you need to take and are comfortable with.
- Stress test your assumptions against different disaster scenarios including higher inflation and poor investment returns.
- Ensure your family are protected in case the worst happens and you are taken from this earth too early.
We have collated everything you need to do to get ready for retirement in our handy ‘Retirement Planning Checklist’ which can be downloaded here. Please pass on to anyone you know who is considering retiring.
Question: What do you think is more important? Retiring healthy but with a restricted lifestyle or retiring later to enjoy more freedoms? Please share your answer on LinkedIn.
If you would like to discuss your retirement options and get a financial health check, please secure a free 15-minute video call with us. You can speak to a Chartered Financial Planner who will listen to your situation, give you an outline of what you need to consider and guide you in the right direction.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.