IN THE BACK
A bird in the hand
Managing your own money can be a frustrating pastime , insofar as whatever you do , there ’ s no avoiding the periodic phases of market turbulence that can conspire to wreck your plans . We seem to have lurched from one disaster to another over the past three years , prompting the Collins English Dictionary to welcome the word “ permacrisis ” to the lexicon . Whether it ’ s Covid-19 , the war in Ukraine or our hapless government shooting us all in the foot with poorly conceived fiscal policy , if you were planning to retire anytime soon , you may need to reconsider . If this isn ’ t possible , you will be faced with a lacklustre pension pot that is likely to have lost a significant amount of value this year , and a downbeat forecast for economic growth . All this means your defined contribution pension pot will buy you fewer retirement years , or smaller annual payouts , until it is all gone . If , of course , you have a defined benefit or final salary pension , then lucky you . No need to read on . You get to have your cake and eat it .
Luck of the draw In previous articles , we have discussed a phenomenon known as sequencing risk . Historical data shows that if you retire in a poor market , you will have a very different outcome to someone in an identical position who retires in a good one . Cue the graph showing how drawing the same constant income in three scenarios , all with the same average returns , turns out very differently over time . I don ’ t want to waffle on about sequencing risk , but suffice to say that mitigating this threat involves leaving your equity investments alone until they recover their lost value . If you start taking income from a damaged portfolio , then you risk running out of money earlier than you planned . To avoid this problem , in poor
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