What is likely to have changed for us - 4 or 5 years from retirement

Modern

Hi. A lot of mse is aimed at folk who know very little, and advice is given in simplistic terms. This pension thread, however, is complex. Can I ask you clever people to give opinion on a question which seems a simple one to ask, at least to me? 

How is the possible and probable outcome of the world financial upheaval caused by coronavirus likely to affect our retirement, in 4 years time?

info on us:
In December :We thought we were going to do okay financially, and we had calculated that if we stay in our house, we would not have a lavish retirement, but we want to keep the big house for having visitors and we could manage on a projected joint retirement income of £40k to £50k p.a.

We contacted a financial adviser to help us assess where a lifetime of work had got us.
My husband is the main earner, he is 56, and he has the larger pension pot. A financial adviser is mid way through working with us to help us to make sure we have money for us to retire when my husband is in his 60th year. We will have a small pension at 60 and then a bigger one when he is 65 and we have savings and some pension pots we can draw down to bridge the gap. My small work pension will pay out £4K a year when I am 60 (five years after hubby) and before then the adviser suggests using my private pension earlier, to help bridge the gap. Our pension plans include us receiving full state pensions.

I have already stopped work which was prompted by a child’s ill health (now well), and have only a small income within the ‘rent a room’ scheme which I will continue for five more years at least, and perhaps beyond. It brings in £7k pa but nothing now there are social distancing rules. My husbands income is dependent on him slogging away at a very hard (figurative) coal face, which is not the way he wants to live after 60. He would at least, dear God, like some choice in the matter. Our mortgage could be finished by 60.

Due to coronavirus, I now guess UK taxes and NI will go up, and perhaps even our travel plans will be affected. I have not worked out how this will affect us. My hubby is a higher rate tax payer and will pay tax on his pension when the time comes. We are not flush with cash and have to be economical. We save each month and over the year we spend this on household stuff, cars, gifts or holidays. We currently have four young adults at home and we plan to warn them that when we turn 60 they will have to contribute more ‘keep’, to be allowed to live at home. They are expensive to house currently, whilst we help them to properly launch into their own adult lives. I have recently seen a huge price rise in the cost of food.

Regarding our pension pots, I think the financial adviser requested figures directly from the pension providers just before the stock market fell. He has since said that he believes the markets will recover, in some time as the economy will still provide for the wants of the country.

We are prepping for a zoom meeting with our adviser. He will give us details of the intricacies of our many small pension pots and will consolidate the dc ones and leave the dB alone. Should I ask for the figures to be updated? What date would be a reasonable for the collection of data?

As asked already above, can any of you knowledgeable people give me a steer as to, generally, whether we should accept we will be likely poorer in the future than we have previously been expecting? Or is it possible that we will get a similar retirement income as if coronavirus had not happened?

Albermarle

 Or is it possible that we will get a similar retirement income as if coronavirus had not happened?

Although there are many knowledgeable people on this forum, there is also a range of opinions. From 'we are all doomed ' to ' by next year we will be wondering what all the fuss was about'

The only sensible answer to your question is that nobody knows as we can not see into the future.

A couple of things we do have an idea about though.

Firstly the drop in share markets has partly recovered and the overall drop in value is not large compared to some previous drops . In the real world some sectors of the economy and companies are going to struggle to recover.

From these points you could guess the stock market will be fairly subdued in the medium term but recent losses are not that bad , especially considering  the sustained rise in share prices in the last few years.

AnotherJoe

Modern said:

As asked already above, can any of you knowledgeable people give me a steer as to, generally, whether we should accept we will be likely poorer in the future than we have previously been expecting? Or is it possible that we will get a similar retirement income as if coronavirus had not happened?

The problem with that question is we don't know what assumptions were behind the projected income level.  is there a buffer built in, eg. Markets could drop X% and You can still take out £50k or was £50k the most optimistic amount And every (say) 1% drop in markets means a 1% drop in income? 

Modern

Aha. Thank you. Well that is a good question that I can put to our adviser.

dunstonh

How is the possible and probable outcome of the world financial upheaval caused by coronavirus likely to affect our retirement, in 4 years time?

Nobody knows.  However, the world has gone through worse and is still here.     During most negative periods, you get people who panic and the media sensationalise things.  Then after the event, you wonder what all the fuss was about. 

Financially, it's not really going to be much different as your planning should have factored in market crashes of this scale.  A financial crisis occurs on average every 7 years.  So, you always know one is coming.   Sometimes it will have a low impact on you personally. Sometimes a lot. But you pretty much know that your retirement will see 3-5 major crashes/declines. So, you should have factored it in (such as keeping a cash reserve of around 18-24 months income as cash to allow income to continue without sale of units).  This is only the third-largest decline in the last 20 years (at time of posting).   Some people are already back in surplus and most of the rest are not far away from being so (unless they are badly invested).

However, if you have not factored in crashes and are pushing limits on sustainable withdrawals or have not given the right preparation then you are going to be affected.

The dot.com period saw three consecutive negative years.    Not all declines are short and sharp.   Have you modelled three negative years into your planning for example?

Governments are going to be key going forward.  Will there be a stimulus to create a new boom?  Currently, the markets think there will be (although recovery to boom is a wide range and where we actually land is unknown).  In the past, booms have often followed severe negative periods.    There is such unknown ahead but there is always unknown ahead. 

Whatever happens, your plans should have already factored in things like this. 

Modern

Thank you. Yes governments are key!

These answers have helped me understand the current economic affect of coronavirus on my pension, and it seems I should think of it as small. I need not be too concerned. This is astounding as so many people are not working and not spending. I am of course pleased that this is the case.

In the short term I will need to consider what I save money on, if food prices remain high or higher and higher rate taxes increase for hubby, and also I assume my rent a room income remains zero until September or later. I was Household Prepping for Brexit and coronavirus, and have saved money and time by having prepared stocks, and we are also saving on petrol by going nowhere - I’ve not even been to Durham. On the other hand we have increased the amount put into my husband’s work pension.

We don’t have 18-24 months of cash as far as I know built into our retirement plan. I will ask our adviser about planning throughout the pensionable period (he has taken us to aged 99 for husband), as in not wanting to sell stock at times of slump, and how we will fund any periods like these.

I think i am fortunate because a chunk of our pensions (60%) are defined benefit schemes. But they are not huge and it will be mostly halved for me if my husband dies first. In addition, they are not in the safest and sturdiest companies so I hope we could not suffer any loss of these companies fold. There is a pension guarantee, right?

Also, at now 51 and 56 are our state pensions pretty well certain?

Currently, because of the expense of children and a house which is just a bit expensive for our means, we have not got the luxury of much discretionary spending. We look richer than we are, and with me working until recently we have afforded the kids without debt, but we have to save costs to afford our lifestyle.

The hope is we can financially relax a little once the sprogs  actually, like, leave. We will have to save up again if we want to contribute to weddings and christenings and to give gifts of cash. If our pensions were worth less than we thought because of coronavirus then we might now think hubby should get used to the idea of working an additional year (to 61/62) and also stretching the mortgage a year (we pay 2.39% interest). Equally, life is for living and we want to enjoy some time before grandchildren, by being a bit selfish! We have healthy emergency savings but we fear redundancy is always a possibility and we need to have cover for this.

I asked my fa how people think they will be able to live on £20k in retirement for two people, and the answer I got was - “they might be in for a shock”. Our bills are so expensive. I think I have been realistic about costs. I am just not sure how well covered we are with income and I need to understand it better. We are paying the fa £3500 so I really want to understand what he is doing.

A number of retirees I have quizzed have said they didn’t need as much money as they thought they would, and that we can afford to be reckless.. I do not know if other more financially aware people would agree.

Marcon

State pensions are never going to be certain - one look at history should tell you that. I suspect a hike in state pension age is all too likely, especially for someone aged 51 and possibly for someone aged 56.

Thrugelmir

Modern said:

How is the possible and probable outcome of the world financial upheaval caused by coronavirus likely to affect our retirement, in 4 years time?

Much depends on your overall financial position and whether there's sufficient in the "pot" to comfortably meet your objectives. Requiring a large uplift in value over the next few years might be challenging to achieve. 

Albermarle

This is astounding as so many people are not working and not spending. 

Yes there is a worry that the stock market is being a bit too calm looking at this massive drop in economic activity, but they tend to look ahead and they must think a good recovery will come.

There is a pension guarantee, right?

If a defined benefit scheme becomes insolvent then 90% is covered by the government.

https://www.pensionsadvisoryservice.org.uk/pension-problems/pension-security/the-pension-protection-fund

Also, at now 51 and 56 are our state pensions pretty well certain?

I think (hope) the provision of a state pension will remain, as it would be electoral suicide to get rid of it.

However as said above the age requirement could change and the 'triple lock' is unlikely to last too much longer .

crv1963

Modern said:

How is the possible and probable outcome of the world financial upheaval caused by coronavirus likely to affect our retirement, in 4 years time?

Due to coronavirus, I now guess UK taxes and NI will go up, and perhaps even our travel plans will be affected. I have not worked out how this will affect us. My hubby is a higher rate tax payer and will pay tax on his pension when the time comes. We are not flush with cash and have to be economical. We save each month and over the year we spend this on household stuff, cars, gifts or holidays. We currently have four young adults at home and we plan to warn them that when we turn 60 they will have to contribute more ‘keep’, to be allowed to live at home. They are expensive to house currently, whilst we help them to properly launch into their own adult lives. I have recently seen a huge price rise in the cost of food.

Opinion only! I agree with your view on taxes and NI and with others that SP age may have to rise too and the triple lock go. I expect that any forcing through unpopular policies will be under the guise of "unprecedented times", with the Govt having carte blanche to do as it wants- within some limits they will have an eye on popularity due to any investigation into the handling of the covid-19 as well as their electoral base.

No one can see the future but markets recover and grow, in the next four years? No one can say. There are things you can do of course- feeding teenagers/ young adults is expensive, but look to where you can make cuts? Have a realistic discussion with them over future expenditure while you have a captive audience? Lay some future ground rules over what you may or may not be able to afford in terms of wanting to help their future selves?  Some things like weddings/ christenings/ house deposits can be reduced or written off- explain we're not as wealthy as we thought? 

Down sizing is sometimes suggested but I personally doubt it releases as much money as hoped maybe moving Home Counties/ London to the NE but within the NE unless a really large house to a much smaller house unlikely to offer much capital. Why don't you look at age proofing the house you have over the next four years? We're spending savings on home improvements to that end, replacing conservatory with an extension- cheaper to heat in the cold NE winters and more usable year round, had some landscaping done last year to reduce the garden maintenance.

Look to other sources of income? Sell clutter? Work out what income level you really need once retired? As in what exactly are your outgoings that can't alter- council tax, utilities etc. Have a look at hobbies- what are you retiring to? How much travel have you in mind? One effect of Covid that will be around for a while will be more expensive travel insurance IMHO. Will you need 2 cars? If you already have two of course. What standard of living are you going to have if husband does go first? What are your joint tax positions? We're stuck knowing I'll always be a taxpayer and Mrs CRV will not be until I kick the bucket so are saving into her pension to take the pension income tax effectively.

One unexpected effect of discussing our retirement plans with my then age 18 year old (now 23) was he decided he wasn't going to work until he was 75 (the age he thinks his generation will get SP) so he has made planning his retirement saving a priority and takes a real interest in crunching numbers- he is also saving for a house deposit and currently furloughed has saved even more. He does live a life but very much within his means, had we not discussed our plans I am not sure he would have made a start so early on his.

Good luck with it all - and like you I haven't been to Durham since 23 March!  

Modern

Thank you for all the replies. We will continue to crunch the numbers. As a household we can economise a bit. I should expect, and plan for a tax rise, a rise in NI payments, and for receipt of state pensions being later. This is a bit depressing because I do not think we can afford all these changes. It is a great idea to talk to our kids and get those who aren’t planning to plan for their futures yet, to do so (as if we can really influence them). Thank you Albermarle for the link, about the pension guarantee. I have worked out a reasonable minimum pension level of income, but if we have in excess beyond I will be very happy. Maybe I should calculate a spread of what is likely but it seems a hard thing to plan.