A brief summary of how ‘Retirement Approachers’ might be impacted by the COVID-19 outbreak.
Last Updated: 25th April
The last few weeks have been a challenge for all of our clients and community. The challenge is not insurmountable, but it has raised particular challenges and opportunities which will vary depending on your stage of life. This Insight shares our ‘COVID Thinking’ for ‘Retirement Approachers’.
Who counts as a ‘Retirement Approacher’?
If you’re wondering why you haven’t heard of this phrase before, it’s because we have just invented it. Due to the nature of our work as Financial Planners, a large segment of our clients are people that have chosen to use our services as they approach retirement. So although the share of the UK population who are approaching retirement is only a small percentage, this group represents a reasonably large proportion of our Individual clients… particularly our ‘the full boosst’ clients who benefit from cashflow planning to guide their retirement decisions.
The impact of COVID is distinctly different for those individuals approaching retirement, compared to those who are younger Accumulators or already retired.
Impact & Reflection
If you are within a few years of retirement, a market fall like we have seen in March can be un-nerving, especially when you have been diligently building your savings ahead of retirement. Hopefully our recent Insights helped you to keep the recent falls in context and remain calm.
Making the decision to retire and ‘turn off your salary’ was already difficult enough, but now that COVID has struck the world, you should re-assess your retirement planning before making any big decisions.
An unexpected event is the perfect trigger to revisit your financial plan, and it may help you to review your long-term planning with a fresh perspective.
Lockdown has meant that the majority of our clients have been stuck at home. We hope you have been able to grasp this unusual opportunity as a dress rehearsal for retirement. Sure, retirement will hopefully involve zero work commitments and more travel, but you will never get a better chance to ‘try’ retirement.
Have you found that ‘lockdown’ has helped to focus your mind?
- What have you enjoyed?
- Equally, what have you not enjoyed?
- Who are the people you’ve wished you could see the most?
- What places have you caught yourself day-dreaming about?
- Are there things that have concerned you?
- Have you found time for new activities, like crafts and DIY that you want to make more time for?
We hope that this unusual time has given you time to better understand yourself, and your true priorities, so that we can reset your goals and collaboratively build a financial plan to deliver your perfect lifestyle.
The Good News?
You will be pleased to hear that boosst portfolios are constructed using extremely cautious bond funds. Bond funds are the ‘boring’ component of portfolios, which behave like an insurance policy. Specifically, we use short-duration, high-quality bonds, which deliver underwhelming returns in a rising market but when markets fall, as they have, they are far less impacted than equities. At the date of publishing (25-04-2020), the two bond funds predominantly used within boosst portfolios sit at more or less the same value as they did on 1st January. They have done their job.
For clients classified as a ‘Retirement Approacher’, we will have guided you through our investment process and ensured that your retirement funds are invested using a suitable portfolio. For most, this will mean a portfolio which is heavy on ‘boring’ bonds, which will have dampened the impact of equity markets slumping. We have done our job.
Falling markets mean that you can currently purchase global equities (shares in companies around the world) significantly cheaper than you could in February. In essence, investments being bought today appear to be good value, but this buyers opportunity is only available whilst markets remain lower than their previous levels. We don’t know how long this will be the case, and frankly, nobody does!
How can you take advantage of this?
You may be finding it tough to spend your income at the moment. Most boosst clients that are approaching retirement have repaid their mortgage, and spend a large portion of the household budget on things we simply haven’t been able to do during lockdown.
Those approaching retirement that have been fortunate to maintain their household income are finding themselves with a large income surplus each month. Here are some ideas on how to take advantage of the unusual economic position we find ourselves in:
Invest a one-off sum: Feeling like you’re sat on more cash than you need? It may be worth speaking to your Financial Planner, to discuss whether you should retain a higher cash balance than usual, or if you could consider adding to your investments. It’s impossible to know if any particular moment in time is a good time to invest, until you have the benefit of hindsight… but what we do know for a fact, is that you can currently purchase the very same global equities, at lower prices than you could at the start of 2020.
Increase Monthly Investments: A combination of no holiday bookings, cancelled dinner parties, sports events postponed and time outdoors being limited, all mean that monthly expenditure is reduced. If you’re finding that you have surplus income at the end of each month, get in touch and we can help you to start, or increase, your monthly investments. Investing on a monthly basis is a brilliant habit as you approach retirement, as it helps to reduce the risk of market timing, as your monthly contributions are buying in to markets on a regular basis, rather than on any single day.
Take advantage of the sales!: To be clear, we do not advocate mindless consumption or spending. However, we do champion making the most of a good deal. We’ve noticed lots of retailers offering cut-prices, so if you were planning a one-off purchase later in the year, why not bring your purchase forward, if there is a good deal? Spending money now on a purchase you have planned for later in the year, seems like a sensible investment to us, if it saves you money in the coming months. At this stage of life, you may want to prepare your home for retirement by doing some household jobs that reduce the maintenance requirements of your home. It’s worth bearing in mind that retailers are pricing their goods quite keenly and outdoor tradesmen will be particularly appreciative of work you can offer. Clearly….succumbing to the itch to spend on items you have not planned for, remains a bad financial choice!
Rebalance your Portfolio: Over time, as some of your underlying investments rise or fall quicker than others, your investment grows slightly out of kilter. The process of rebalancing restores your portfolio back to its original allocations. After a market fall such as the one we have witnessed in March, you can find yourself holding less equities and more bonds than originally intended. By rebalancing, portfolios will sell bonds (which have broadly remained level in value) and purchase equities (which have fallen), which is a positive transaction. All boosst individual clients will receive a communication from boosst on May 1st regarding a portfolio rebalance.
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We thank you for the trust you have placed in us, and we hope you and your family remain healthy and safe.
Please be aware that the information we have shared in this Insight is for information purposes and is not individual advice. We make a conscious effort to check that all links to third party websites remain active and correct however we cannot take responsibility for their content or their availability.