Retire At The Right Time

According to recent figures from pensions expert Axa, choosing the right time to retire could make all the difference to annual pensions returns, and they give the example of a man retiring in May 2012, who would have £13,407 a year less to live on than if he had retired in January this year, despite starting with the same initial investment.

The difference in returns is due to a rising stock market and slightly higher annuity rates in January 2013, which was the best month to retire since June 2007. Axa also points out that, although they use a man as their example, the principle applies equally to women.

Annuity rates in June 2007 were 7.33 per cent, but had dropped to 5.37 per cent in May last year and had only risen slightly by this January, to 5.61 per cent. The reason they are still so low is because of the low interest rate that looks set to remain for some time and the effects of quantitative easing.

However, planning a retirement date can be a difficult process and specialist advice should be taken. Some pension funds have a built in automatic “lifestlying” scheme, which moves people’s assets from being invested mainly in the stock market into less risky assets such as bonds as the time for retirement approaches.

The way that lifestyling generally works is that risks are taken earlier on in the pensions process, with the percentage of funds in bonds gradually rising as the person nears retirement, but this can still be fraught, with serious implications for a pensions pot.

The change can take place anytime up to 15 years before the desired retirement date and would generally be in gradual increments, so that the proportion of shares would fall from 100 per cent to 80 per cent in the first year of the slow down and then gradually to zero by the retirement date.

However, some people are not aware that their pension is lifestyled, so should check and ask their fund manager to keep an eye on the markets, as a rash move from stocks to bonds at the wrong time could make a huge difference to the funds they have to enjoy when they retire.

Marc Stemmer offers financial planning advice to businesses and individuals; helping them to achieve their financial goals.