If you were to read the financial sections of the New Year financial press, you’d imagine that 2018 was a terrible year for your finances.
After all, the FTSE 100 index has fallen in value by around 12% over the course of the year, and the downward trend has been in place for nearly four months.
You get fewer US Dollars and Euros for your Pound Sterling than you did at the start of the year (this trend has been in place for much longer), making the cost of overseas holidays much greater.
Overseas company shares have lost value (but the weakness of Pound Sterling has helped reduce the losses) and even gilts have lost value.
It’s hard to find any positive financial news about 2018 in the annual reviews.
So, you’d imagine that 2018 was a bad year for those relying on investments in retirement.
But….
-Dividends from the UK stockmarket increased by over 4.3% in 2018, comfortably beating inflation and wage rises.
-Despite the constant flow of bad news about the British High Street, UK property funds continued to pay attractive dividends, with values keeping pace with inflation. It’s easy to forget that these funds hold warehouses, leisure and office property as well as shops.
-Perhaps, less obviously, the UK tax regime remained favourable for those who have built up wealth over their lifetime. Whilst we saw a reduction in the dividend allowance, income seekers were able to continue to withdraw tax free income from their ISAs, collect tax free lump sums from their pensions and to convert taxable funds into tax-free ISAs, all of which helped them to boost their income by making tax savings.
-And, of course, the UK state pension increased by 3% in April, outstripping rises in the cost of living.
Should you be worried about falling stockmarkets?
If you have acted on good advice about your retirement income…no.
A good adviser will have told you that there will be times when shares lose value; and they will have told you to hold some cash so that you can avoid drawing down on your shares when values are low.
The adviser will also have told you to diversify your investments. My clients get bored of me going on about this!
Even the riskiest retirement income investor should have enough cash in their portfolio to cover a year’s worth of income and charges, and the average investor should have at least two years’ worth.
Shares have only fallen in value since August, so it’s a bit early to start worrying!
Retirement income seekers shouldn’t care about how far shares fall in value; they should only worry about how long their values take to recover.
But if you haven’t acted on good advice and invested your retirement savings entirely in shares, then perhaps you should be worried.
Whilst you won’t have lost much so far by selling shares at the wrong time in order to fund your outgoings, if shares don’t quickly recover their values, you’ll be running the risk of permanently damaging your net worth, reducing the amount you leave to your children, or even running out of money.
A good retirement income planner can help you decide what to do – change your investment approach, reduce your spending, pay less tax or pay less in charges.
If you don’t know how your retirement savings are invested, then it’s time to find out!
Wishing your retirement savings a happy 2019!
