If there is one thing that has been rubber stamped over the last few years is the unpredictability of the stock market. In 2016, following the Brexit vote and the inevitable crash was followed by record stock market highs in early 2017. Nobody knew this was going to happen and it was predicted by pundits or economists.
Pundits in the City of London are claiming that the next crash is just around the corner with an equal number claiming this record high will be maintained. If you’re trying to manage your pension funds you can be forgiven for feeling this is all just a little too much to handle. With this in mind here are some tips to help you protect your funds from the ravages of the stock market.
Wait until the Markets have Calmed Down
In 2015 Pension Freedoms allowed people to draw out lump sums from their pension pot rather than relying on what for many was a poor annuity payout. The advantage of the latter, however, is that you are guaranteed an income for the rest of your life.
The issue you face when approaching retirement and indeed when you are retired is that the value of your pension fund can increase when the markets are strong, but go the other way when the markets tumble. This can be compounded if you withdraw lump sums from your fund, as you suffer what many financial planners call “pound ravaging”.
This is where your fund reduces due to the stock market, it reduces further by drawdown withdrawals, and as the fund has effectively been struck twice, you have less funds remaining for further withdraws or to rebuild the fund when times get better.
This can be particularly poignant in early retirement.
One solution is to pause withdrawing cash from your pension fund until it is clear what the markets are going to do next. If possible consider relying on Isas to get you by especially in early retirement to avoid “pound ravaging”. You can use drawdown to set up a cash fund to help you through difficult times in the market. If you have not already done so, consider setting one up.
Change Withdrawal Amounts
Another strategy to preserve your pension fund is to alter how much you drawdown. Often financial planners will say switch to withdrawing percentages rather than fixed sums. This will vary your income but your fund will remain more intact in the bad times. The debate continues to rage over the best way to manage a fund, with many advisers believing that no more than four percent should be withdrawn over the course of a year.
Managing your Investments
If you are comfortable with managing your investment portfolio you may want to consider strategies such as withdrawing from better performing facets of your portfolio only, giving the weaker performing ones time to recover. Other options include putting your funds into income – generating trusts. Again, this carries risk but they have a good record in the long run.
Use a Professional Financial Adviser
It is fair to say it is a necessity to seek professional advice where your pension is concerned especially if you are using drawdown for cash. My award winning financial planning advice can help you manage your pension funds to withstand the volatility of the markets, providing you with the best income possible and have a better quality of life. Click here in the first instance and complete the Call Back Service form. It is time for a better quality of retirement.
Source: The Daily Mail
For more information, please contact Michele Carby at Holborn Asset Management on +971 50 618 6463 and on e-mail at [email protected]
