Hindsight is great. It tells us which wars weren’t worth fighting, which prime ministers kept their promises (or didn’t), which horse was worth backing at the bookies’.
If only we had a crystal ball to see what’s coming. It would certainly be of use to those approaching retirement in an age of poor yet fluctuating annuity rates.
According to a piece of research by Axa Life Invest, January was the best month to retire this year. I’ve missed my chance, then.
This conclusion is based on a man investing a lump sum in the stock market over 10 years. If he’d invested for 10 years to July 2013, he would have secured £2,000 a year less income from an annuity, according to the study.
There are a few issues at play here. First, this research assumes an initial investment exceeding £300,000 – something most people do not, and will not, have. In that context, assuming 10 years’ worth of growth, £2,000 a year difference does not look quite as large.
But it is material. And for those with smaller pots, the difference has a greater impact, even if the monetary amounts are lower. Some argue that, for those with small pots – we’re talking up to £20,000 at most – shopping around is almost pointless as you’re talking a couple of pounds here and there. I don’t buy into such thinking. If you are a pensioner with little money to play with, every penny counts.
While it is interesting to observe which month was best to retire in, it tells us nothing about what’s coming. We still have the problems of low gilt yields and poor annuity rates. We still have people not shopping around, despite attempts by the ABI to give them a kick up the backside. We still have people wondering whether to fix now or wait to see it if improves, only to find it may have got worse.
Even this is based on an assumption that people can choose when to retire, or when to buy an annuity. For many, this simply isn’t reality. They work until they retire and immediately require a replacement income. Unfortunately, in many cases, that replacement income will be way below what was expected or needed.
So hindsight is indeed a wonderful thing. And so is the luxury of choice. But while some only have one of those, many more have neither.