From market highs to sudden shocks: what retirees need to know

There has been no shortage of headlines recently about fluctuations in the financial markets, and if you are nearing retirement or already drawing from your pension, this uncertainty can feel particularly concerning.

This article explores how periods of market volatility can affect those accessing their pension now, or planning to do so in the near future.

 

Your Retirement Readiness Checklist

If you are approaching or have started accessing your pension, the checklist below can help you stay informed and make good decisions during periods of market volatility:

• Speak to a professional – If you are working with a Rosebridge financial adviser, you should have discussed your investment approach and retirement income plans, and how recent market activity might affect them.
• Understand how your money is invested – Consider whether your portfolio is designed to limit your exposure to market fluctuations, especially in the early years of retirement. Have you allocated funds to lower-risk assets, to cover your short-term income needs?
• Review your income plan – Check whether the level of income you are taking from your pension is sustainable over the long term.
• Avoid reacting impulsively – If your investments are set up appropriately, it is usually best not to make rash decisions in response to short-term market movements.
• Plan a follow-up review – Set a date in a few months’ time to revisit your financial position and check  you remain on track.

 

Understanding Market Movements

Recent volatility has been influenced partly by global responses to US trade policy under President Donald Trump, as well as other international developments. While we cannot predict how long this uncertainty will last, it is important to consider how it might affect your retirement plans.

If you work with a financial adviser, they can help put current events into context for your personal situation. In the meantime, here are three important points to bear in mind:

 

1. Growth Remains Important Because of Rising Costs and Longer Lives

Some people move pension assets  into cash or low-risk assets during periods of market volatility. While this may feel safer, it can increase the risk of your savings not keeping up with inflation or lasting as long as needed.

Many underestimate how long they might live, and maintaining spending power over a potentially long retirement may require continued investment growth. That’s why many people keep part of their pension invested, even in retirement, despite the risks. Remember that investments can fall as well as rise in value. If you stay invested, the next two risks are also important to consider.

 

2. Taking Income During Market Declines Can Erode Your Pension Faster

Different types of investments react to market movements in different ways. When markets fall, higher-risk investments are often more affected. If you’re withdrawing a regular income from these investments during a downturn, you could end up depleting your pension pot more quickly than planned.

This happens because taking a fixed income from a pot that has fallen in value means each withdrawal represents a larger percentage of your total savings. It also reduces the amount left invested, limiting the potential to benefit from future market recoveries. This phenomenon is sometimes referred to as “pound-cost ravaging”.

Being aware of this risk is especially important if you’re taking a flexible income from your pension, as the long-term impact of drawing from a falling pot can significantly reduce how long your savings last.

 

3. Investment Losses Early in Retirement Can Have Long-Term Effects

Losses early in retirement, when you are no longer making contributions, can be particularly damaging. Without new money going in, there is less opportunity for your investments to recover.

That said, there is no need to panic. Many pensions offer investment options designed to reduce exposure to risk as you approach retirement, though it is still possible your investments may have lost value recently.

Even if you have not had advice before, it can be helpful to speak with an adviser to make sure your pension investments still suit your needs and circumstances.

 

Managing Risk in the Early Years of Retirement

It is particularly important to protect your pension against major losses in the early stages of retirement. Doing so could significantly extend the life of your retirement savings.

One way to manage this is by separating your retirement savings into different investment types, depending on when you expect to need them. For instance:

• Lower-risk investments for short-term needs – These may offer more stability and help reduce the impact of market volatility in the early years.
• Medium-risk investments for later in retirement – These can provide the opportunity for growth, helping your money last longer.

If you are in a workplace pension and have not made any investment choices yourself, you are probably in a default fund selected by your provider. This may be called a lifestyle strategy or default option in some personal pensions.

These investment strategies are usually spread across different types of assets and global markets. This diversification helps to smooth returns, as various investments react differently to political events, economic changes, and other global developments.

If you have chosen your own investment options, now might be a good time to review them and consider whether they still match your retirement plans and attitude to risk.

 

Get in Touch

If you would like to discuss how market movements could impact your pension or retirement income, speak with our experienced team of financial planners. We can help you review your investment approach, income plans, and long-term financial strategy to ensure you remain on track.

Ramsbottom office: Email enquiries@rosebridgeltd.com or call 01204 300010
Chester office: Email enquirieschester@rosebridgeltd.com or call 01244 569141
Leeds office: Email enquiriesleeds@rosebridgeltd.com or call 0113 243 7100

 

Please Note

A pension is a long-term investment. The value of an investment and the income from it could go down as well as up. The return is not guaranteed and you may get back less than you originally invested. The contents of this article are for information purposes only and do not constitute individual advice.