In Focus: Retirement planning  

How to structure retirement in volatile markets

  • Explain how volatile markets are affecting retirement planning
  • Communicate how to plan around volatile markets
  • Describe how new solutions can help create retirement plans in volatile markets
How to structure retirement in volatile markets
Volatile markets are a threat to people's retirement funds. (Pexels/Dovis)

These are challenging times for advisers and their clients when it comes to retirement planning. 

Retirees can be anxious about ensuring they are properly prepared for later life and it is down to advisers to calm clients and put in place appropriate retirement strategies.

But market volatility has made this difficult. The Covid pandemic and lockdowns followed by Russia invading Ukraine and a subsequent cost of living crisis have caused markets to be volatile, which advisers are now having to navigate.

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Stocks and bonds are under pressure as an era of prolonged low interest rates gives way to some of the highest rates the UK has seen in a decade.

Last year the typical inverse relationship between equities and bonds was rendered ineffective as both asset classes dropped.

In March, the Bank of England put up interest rates for the 11th time since December 2021 as it continued its battle to ease inflation. The latest decision to lift rates to 4.25 per cent came after inflation rose unexpectedly to 10.4 per cent.

While the Office for Budget Responsibility forecasts inflation to fall below 3 per cent this year, the future remains uncertain and volatility may not subside as fast. 

Therefore retirement planning is likely to see a shift as people’s journeys change, and advisers will need to figure out which products respond best to the current economic environment.

So, what does retirement planning look like in volatile markets?

Volatile markets pose a risk

One of the main risks of volatile markets is that people may panic and make impulsive decisions based on short-term fluctuations, says Dominic James Murray, chief executive of Cameron James.

"This can lead to selling assets at a loss, missing out on future gains, and disrupting the overall retirement plan."

"Additionally, volatile markets can make it difficult to accurately forecast future income streams and may require a reassessment of investment strategies. There is also the risk of inflation eroding the purchasing power of retirement savings over time. 

"In short, volatile markets can threaten the stability of retirement plans and require careful consideration and planning to manage these risks effectively."

But in terms of retirement planning for clients, this is not very different from how it has always been, James Murray adds.

He says the fundamentals remain the same in that clients should invest in a risk-rated diversified portfolio (equities, bonds, and cash), make contributions consistently over time, and pay attention to fees and tax when accessing.

“The truth is, no one can accurately time the markets, and advisers should be reminding their clients of this,” he says.

“The best approach is to stay invested and to be a guiding hand for clients. Selling out of the market in the current volatile environment is a risk. Over the long-term, markets have always recovered, and there is no reason to think they will not do so again.”