Post-Retirement Income Decisions, Research Articles

The costs of a major economic and financial crisis to a retirement plan

Any major crisis will have a lasting impact on societies’ socio-economic status, values, and norms. In some instances, it will require some drastic and even uncomfortable interventions, namely, to change one’s behaviours and customs, and re-aligning one’s priorities to the “new normal” emerging from the crisis.

The COVID-19 crisis of 2020 is no exception, in fact of all the major global crises since WWII it is setting the new benchmark in socio-economic disruption, it only not has posed a major health threat to infected people and stretching the capacities of healthcare facilities and support, but governments’ actions of restricting social and economic activities to stem the tide of widespread infections across regions and countries have had a major global economic impact, and in the process thereof eroded employment, income security and wealth on a large scale.

Retirees were not spared at all – in many instances they are perhaps the worst affected, not only because of the heightened health risk concerns but the financial risks of a sharp market downturn and corresponding value destruction to the sustainability of their retirement plans.

What does a major crisis and some decline in valuations mean financially to a retiree? Should one just sit it out, wait for “normality” to return and valuations to recover? Often “yes”, but it is not necessarily the whole truth. In many instances, retirees should re-assess their personal situations, re-prioritise their spend, seeking ways how to reduce their living expenses, and re-visit their retirement plans. There is no guarantee that markets will return to its pre-crisis levels soon, and while the retiree is funding her expenses from her reduced retirement assets, the recovery may be slow, and the value destruction following the crisis may seem permanent.

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Post-Retirement Income Decisions, Research Articles

Stressful times, income decisions and retirement capital

We have seen these situations so many times before: Retirees with a number of years already in retirement feeling the pinch of ever-growing income needs, but the amount of retirement capital available is dwindling down. What possible options could be considered to alleviate some of the worries such retirees may face?

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Post-Retirement Income Decisions, Research Articles

Retirement spending (drawdown) rules & considerations

This a three-part series considering different rules that may be applied in assisting retirees with their drawdown decisions at the annual income review stage.

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Post-Retirement Income Decisions, Research Articles

Re-visit: Adjustments in retirement spending with declines in retirement fund values

Well, 2020 has dished up an unprecedented global crisis, probably not foreseen by most, and definitely not experienced by any person. While the immediate health issues relating to the Corona virus (Covid-19) illness and concerns may subside and be solved within the next year or two, its impact on financial markets and the broader economy may have longer-lasting and far-reaching effects.

In the meantime though, life goes on (although very different from the recent past) and decisions still need to be taken, like one’s income decisions from your retirement plan (annual reviews). This article shed some light on possible strategies to consider, especially when valuations on investment portfolios have declined considerably.

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Research Articles, The Short Series on Retirement Planning

Variable spending patterns in retirement and maximum initial drawdown rates

Most retirement planning tools and projections assume a constant real spending pattern in the post-retirement phase, i.e. the retiree will consume each year, after adjusting the figures with the inflation rate, the same as the previous year. Yet, in reality, a different picture emerges where retirees over time are consuming and spending less in real terms on themselves. Thus, a decline in real retirement spending is noticeable, but this trend at some stage reverses, typically towards the final stages of retirees’ lifetime, when their medical and personal care expenses will escalate at a rapid rate.  This type of U-curve real spending for retirees is also known as the “retirement spending smile”.

The question arises how does this spending pattern affect how much a retiree could withdraw at the onset from her retirement capital sources, i.e. the maximum initial drawdown rate, and how does it differ from the constant real spending assumption?


Source: Retirement_Var_spending