To keep up with rising bills, many savers may be tempted to dip into their retirement savings to help them manage the changes. Retiring in a recession may seem daunting, however there are steps people can take to mitigate losses.
Paul Clifton, director of wealth planning at Arbuthnot Latham spoke exclusively with Express.co.uk on how Britons can “recession-proof” their retirement.
He said: “In my opinion, to help recession-proof retirement you need a plan of how you will draw on your assets and when.
“To design this, we need to understand the aims of our clients, including financial priorities. It is really important to make the most of your active retirement after all those years of work.
“Generally, we would recommend you hold enough cash (when combined with other income) to cover expenditures for three years. So short-term market movements have less impact.
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“On the other hand, there is a risk of cash being eroded by inflation so it is also important not to hold too much.”
Having cash that is readily available can be known as an emergency fund. Experts suggest having three to six months worth of expenses, in cases of emergencies.
The money saved and put aside can cover a financial shock. This could be losing a job, or a large, unexpected expense.
It can prevent people needing to borrow money or make difficult financial decisions in those moments, by giving them savings to fall back on.
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Mr Clifton continued: “With regards to pensions, few clients buy an annuity now, so most will be invested for the long term in some sort of flexible drawdown arrangement.
“If most of the pension is being invested for five years or more, there should be time for markets to recover should they fall in the short term.
“Also, investing in a diverse range of assets such as shares, bonds, property, commodities, hedge funds and different currencies will help to spread the risk.”
Mr Clifton suggested that people can try to continue making money, so that they don’t yet have to rely on their investment accounts.
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This could look like taking a part time job or freelance work, or doing a side-hustle in a field that they’ve always wanted to try.
Working part time or in some form may allow people to delay drawing from their private pensions which in turn will allow that money to grow larger when they eventually do take them.
The amount of time that people continue to work in some capacity and let their investments weather the volatility could be what they need to feel better about retirement.
Additionally he explained it is also important that people don’t try to time the market – if someone sells off while they’re panicked about a recession, they may miss out on a market rebound where their investments could have made money back.
The Bank of England raised the base rate to 1.75 percent in a bid to mitigate the devastating impact inflation is having on the economy.
Britons are being told to prepare for the UK economy to continue shrinking until the end of 2023.
In July, the CEO of Goldman Sachs, David Solomon, said that the odds of a recession were greater than normal.
In an interview with CNN, he said people must “prepare for an environment of high inflation” and added “there’s a good chance that we haven’t reached the peak yet.”
He said: “Anytime you have high inflation and go through an economic tightening, you wind up having some sort of an economic slowdown.
“So, I think the chances that we have a recession are high.”
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