Retirement Amidst Economic Uncertainty - 5 Things To Know

Economic Uncertainty

According to the World Economic Forum, 56% of Chief economists expect the global economy to weaken during 2024.

The International Monetary Fund (IMF) is also forecasting a slight decline in global growth in 2024.

The consensus view is that global economic activity will remain slow, financial conditions will remain tight and geopolitical tensions will remain high – all of which will lead to continued economic uncertainty.

This may present an opportunity if you are some way off from retirement and you are still accumulating capital.

However, what if you are approaching retirement or have recently retired.

Here are five things you might want to consider:

#1 - Define Your Ideal Lifestyle

Having something to retire to is a well-known cliché but many people find this difficult to do.

A successful retirement takes some planning and is likely to involve greater expenditure during the early part of retirement.

Retirement goals can include:

Taking an extended holiday.
Further education.
Being engrossed in a hobby.
Part-time work.
Volunteering.
Spending more time with the family.

Economic uncertainty doesn’t mean you can’t do any of these things but it does mean getting your finances in order.

This brings us to number 2.

#2 – Review Your Financial Plan

It makes sense to regularly review your financial plan – or to create a financial plan if you don’t have one.

There are a number of assumptions that are used to model future cash flows, for example, around future inflation rates, interest rates and expected future investment returns and these should be reviewed and stress-tested to ensure that you remain financially comfortable throughout retirement.

Different scenarios can also be modelled to ensure that your financial objectives in retirement remain achievable.

If you are planning to retire in the near future, your financial plan can help you determine whether you need to save more in order to generate the income you need. It may show that you can retire earlier than expected or that you may have to postpone retirement for a year or two.

Having a financial plan, based on conservative assumptions can provide the peace of mind that you can live your ideal lifestyle, whatever the economic conditions.

#3 – Have a Contingency Fund

Building up a contingency fund in easily accessible, liquid cash is important especially when investment markets are volatile. Having to sell investments at an inopportune time to fund income withdrawals can have an impact on your overall financial planning strategy.

A strategy many advisers use is to put, say, two years’ worth of income in cash which can be drawn upon if wider investment markets are down.

#4 – Review Your Existing Financial Planning Assets

Many people approach retirement with a range of different financial products and investments accumulated over the course of their working lives. For example, several different workplace pensions, a range of ISA investments, a few single shares and, perhaps, a number of different savings accounts.

It would make sense to review these and make changes where appropriate to ensure that they are working for you by helping you move towards your retirement objectives.

#5– Review Your Investment Strategy

Taking a long-term disciplined investment approach is a vital part in any financial planning strategy. Too many people make knee-jerk reactions when markets fall only to miss out when markets rise. One of the key services a good financial planner performs is to be their client’s behavioural coach and stop them making ill-advised investment decisions at inopportune times.

As you switch from accumulating capital to drawing an income from that capital so there may be a need to change the investment strategy.

Peace of Mind

Retirement requires a huge shift in mindset. It is psychologically challenging to go from receiving a regular income by way of a salary to relying on your accumulated capital to provide you with a regular income.

Having a financial plan in place and your finances sorted can provide much needed reassurance and peace of mind that you can achieve your retirement goals irrespective of the economic outlook.