Pretty much the last thing any investor wants is the stock market to crash shortly before they reach retirement.
It means that after a lifetime of hard saving, the value of your pension and investments could plummet, when you need them the most.
Worse, it could force you to start drawing retirement income at a time when its value has been depleted significantly. If you end up withdrawing money at the bottom of the market, you will not benefit when share prices recover.
It is a rotten thing to happen, which means that anybody retiring over the next few years has a lot to worry about right now.
The scale of the damage depends on how you plan to generate income in retirement, Tom Selby, head of retirement policy at investment platform AJ Bell, says.
There are two main options facing retirees — either leave your retirement pot invested and take income as you need it, sometimes called drawdown, or use your savings to buy an annuity that pays you a guaranteed income for life.
Both have their pros and cons. A drawdown lets you benefit from future stock market growth, but with added risk as there is no guarantee your savings will last throughout your retirement.
By contrast, an annuity is guaranteed to pay income for life, no matter how long you live, but you may be disappointed by how much you receive.
Anyone who will use their entire pot to buy an annuity should take investment risk off the table as they approach retirement, Mr Selby says.
“Failure to do this will leave you hostage to short-term market fluctuations. As we have seen in recent months, it can go down, as well as up.
“If you don’t de-risk in this way and your fund drops by, say, 20 per cent in the run-up to buying an annuity, you face the grim choice of delaying retirement or retiring as planned, but on a much lower income,” he says.
Those who opt for drawdown face less of a “cliff-edge” decision, Mr Selby adds.
“Someone in good health in their mid-60s, for example, could have 30 years to live and be perfectly comfortable maintaining their exposure to markets in the face of a crash.”
They can protect themselves by holding enough to fund their retirement income for one or two years, while they wait for the market to recover.
“The last thing you want to do is make big withdrawals in the early years of retirement, at a time when shares are down. This killer combination can be difficult to recover from. Larger withdrawals today will likely mean you need to cut back later, or risk running out of money,” Mr Selby says.
Another option is to carry on working for a bit longer until markets stabilise, says Vijay Valecha, chief investment officer at Century Financial in Dubai.
“Even working part-time could lighten your dependence on your portfolio and give it breathing space to recover. You could even top it up if you earn enough.”
Top 10 global cities for retirement — in pictures
Traditional financial advice has suggested that people move into more cautious investments such as cash and bonds as they grow older, but Mr Valecha says don’t overdo it.
While tempting, these lower-risk assets will pay a lower return, which means they will struggle to keep up with inflation over the course of a retirement that could last for a couple of decades.
“Your retirement savings could lose their purchasing power just when you need them the most.”
You should remain diversified by spreading your money between stocks, bonds, cash, property and commodities, Mr Valecha says.
“Look for a healthy mix of large and small-cap stocks, as well as growth and value funds, and funds investing in different regions of the world. So, when some sectors struggle, others may compensate.”
Investors who planned carefully in the run-up to retirement and gradually moved their money out of high-risk assets such as shares will have been shielded from current volatility, Daniel Hough, financial planner at wealth manager Brewin Dolphin, says.
Some pension funds move into bonds and cash automatically, a process sometimes called “lifestyling”, so check whether yours does.
“If you plan to retire early or later, tell your pension company to ensure your scheme still reflects that. If unsure, seek advice, ideally at least five years before you plan to retire.”
Annuities fell out of favour after the global financial crisis, when returns collapsed as central banks slashed interest rates to about zero.
“We generally advise against buying annuities unless you have a particular set of circumstances,” he says.
“While they provide a guaranteed income, they can’t be passed on to family unless you build in a spouse’s pension and they are also relatively poor value in terms of the expected income versus what you have to put in. Unless you are a single person with no dependents, we wouldn’t typically suggest them.”
Savers approaching retirement should neither be shocked nor surprised by the stock market crash, given that they happen all the time, Sam Ratnage, a chartered financial planner and wealth manager at Tideway Wealth, says.
“A stock market crash is a part and parcel of investing and will happen multiple times during the average retirement, which can last up to 30 years. Protect yourself by building a diversified portfolio, which allows time for stocks to recover before you need to draw from them. This should ensure that you never sell assets at the wrong time.”
As ever with financial planning, the decision will come down to your personal circumstances and personal attitude to risk.
There is always a halfway house, says Andrew Tully, technical director at financial services company Canada Life.
Choosing between drawdown and an annuity is not an all-or-nothing decision. Instead, you could have both.
“You could leave most of your pension invested, allowing it to grow, but use a chunk to buy an annuity,” he says.
As you grow older, you may no longer want the risk and trouble of managing your own investment funds.
“You could steadily lock more of your money into an annuity, taking advantage of any further rate rises as you get older,” Mr Tully says.
Retirement is a long-term process. By planning ahead, you see your way through a short-term crash without suffering too much damage.
COMPANY PROFILE
Name: Xpanceo
Started: 2018
Founders: Roman Axelrod, Valentyn Volkov
Based: Dubai, UAE
Industry: Smart contact lenses, augmented/virtual reality
Funding: $40 million
Investor: Opportunity Venture (Asia)
Miss Granny
Director: Joyce Bernal
Starring: Sarah Geronimo, James Reid, Xian Lim, Nova Villa
3/5
(Tagalog with Eng/Ar subtitles)
What can victims do?
Always use only regulated platforms
Stop all transactions and communication on suspicion
Save all evidence (screenshots, chat logs, transaction IDs)
Report to local authorities
Warn others to prevent further harm
Courtesy: Crystal Intelligence
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
The Kites
Romain Gary
Penguin Modern Classics
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Profile of MoneyFellows
Founder: Ahmed Wadi
Launched: 2016
Employees: 76
Financing stage: Series A ($4 million)
Investors: Partech, Sawari Ventures, 500 Startups, Dubai Angel Investors, Phoenician Fund
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KILLING OF QASSEM SULEIMANI
The Facility’s Versatility
Between the start of the 2020 IPL on September 20, and the end of the Pakistan Super League this coming Thursday, the Zayed Cricket Stadium has had an unprecedented amount of traffic.
Never before has a ground in this country – or perhaps anywhere in the world – had such a volume of major-match cricket.
And yet scoring has remained high, and Abu Dhabi has seen some classic encounters in every format of the game.
October 18, IPL, Kolkata Knight Riders tied with Sunrisers Hyderabad
The two playoff-chasing sides put on 163 apiece, before Kolkata went on to win the Super Over
January 8, ODI, UAE beat Ireland by six wickets
A century by CP Rizwan underpinned one of UAE’s greatest ever wins, as they chased 270 to win with an over to spare
February 6, T10, Northern Warriors beat Delhi Bulls by eight wickets
The final of the T10 was chiefly memorable for a ferocious over of fast bowling from Fidel Edwards to Nicholas Pooran
March 14, Test, Afghanistan beat Zimbabwe by six wickets
Eleven wickets for Rashid Khan, 1,305 runs scored in five days, and a last session finish
June 17, PSL, Islamabad United beat Peshawar Zalmi by 15 runs
Usman Khawaja scored a hundred as Islamabad posted the highest score ever by a Pakistan team in T20 cricket
MATCH INFO
Syria v Australia
2018 World Cup qualifying: Asia fourth round play-off first leg
Venue: Hang Jebat Stadium, Malayisa
Kick-off: Thursday, 4.30pm (UAE)
Watch: beIN Sports HD
* Second leg in Australia on October 10
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UAE currency: the story behind the money in your pockets
The specs
Engine: 2.5-litre, turbocharged 5-cylinder
Transmission: seven-speed auto
Power: 400hp
Torque: 500Nm
Price: Dh300,000 (estimate)
On sale: 2022
Set-jetting on the Emerald Isle
Other shows filmed in Ireland include: Vikings (County Wicklow), The Fall (Belfast), Line of Duty (Belfast), Penny Dreadful (Dublin), Ripper Street (Dublin), Krypton (Belfast)
The burning issue
The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
Read part four: an affection for classic cars lives on
Read part three: the age of the electric vehicle begins
Read part one: how cars came to the UAE
Batti Gul Meter Chalu
Producers: KRTI Productions, T-Series
Director: Sree Narayan Singh
Cast: Shahid Kapoor, Shraddha Kapoor, Divyenndu Sharma, Yami Gautam
Rating: 2/5
UAE currency: the story behind the money in your pockets
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
The Sky Is Pink
Director: Shonali Bose
Cast: Priyanka Chopra Jonas, Farhan Akhtar, Zaira Wasim, Rohit Saraf
Three stars
Our legal consultants
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Killing of Qassem Suleimani
In numbers: China in Dubai
The number of Chinese people living in Dubai: An estimated 200,000
Number of Chinese people in International City: Almost 50,000
Daily visitors to Dragon Mart in 2018/19: 120,000
Daily visitors to Dragon Mart in 2010: 20,000
Percentage increase in visitors in eight years: 500 per cent