Michael MacLeod, Financial Adviser
Posted in Fiducia News, Financial Advice on 13.04.20

Financial Adviser Michael Macleod shares his top five tips to share with drawdown clients currently experiencing an incredibly punishing time in the markets.

Investors have endured an incredibly punishing month during the global markets sell-off which has been especially troubling for drawdown clients.

Global markets sold-off indiscriminately during the worsening coronavirus pandemic have presented troubling questions for people either in drawdown or approaching retirement – due to the potentially damaging impact on retirement income plans.

Here, Michael shares five tips to communicate to spooked drawdown investment clients which could help shape their standard of living and financial wellbeing in retirement.

  1. Stay Invested

If you are not invested, then you cannot be a part of the recovery when it arrives. History tells us that markets do recover and those that hold their nerve will tend to do better than those that don’t. Remember the long-term plan and do not be tempted to make short term emotional decisions as they are rarely the right ones.

  1. Consider reducing withdrawals

When markets are down, and you sell then you are effectively realising those losses. The money being taken out, obviously doesn’t have the opportunity to grow when the markets do recover. Furthermore, when you are drawing down a portfolio the returns in the early years can have a huge impact on how long the pot will last, so if you can reduce or even stop, withdrawals then it could really help the longevity of the funds.

  1. Income from other sources

If you have money from other sources that can be used instead, this can mitigate the impact of a falling market and could make a big difference to the number of years the pot is likely to last. The logic here is that we are aiming to sell when the market is strong and avoid selling when the market is down. This is why it could also be worthwhile exploring a “bucket approach” to drawdown. This involves retaining money in cash and withdrawing from this. Only sell down the investment and top up the cash at a later date, when markets have hopefully recovered. Holding onto a few years’ worth of income in cash is therefore a potential safety barrier.

  1. Top-up pension

There may have been a recent and profound decline in the value of markets, but for some this could be an opportunity. Not only does adding money to your pot help in the long term – by potentially improving the sustainability of potential future or current income – but it can take advantage of lower prices. Markets are a lot cheaper than they were at the turn of the year and many see this as an opportunity for investing now. It’s still paramount to have a long-term view to investing, but the analogy of buy when the price is low and sell when the price is high is as relevant now as it ever was.

5. Delay retirement

If you’re just beginning your retirement journey or you are not yet retired, then it may be worth thinking about prolonging your career. Many people choose to phase into retirement gradually, rather than seeing it as a cliff edge goodbye to work. By delaying your retirement, you reduce the short-term worries about cashing in your investments to generate income during a dip in the market. A drop in the value of your portfolio in the early years of retirement can have a profound impact and careful planning is crucial at this time. Ultimately each and every client is different and will have different financial positions, goals and objectives.

If you would like to speak to Michael about your personal circumstances then please do visit the website to make a call or book an online appointment.

 

 

Michael MacLeod, Financial Adviser
Posted in Fiducia News, Financial Advice on 13.04.20

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