The Retirement Newsletter: A semi-quarterly review — a quick look at my panic from issue -81
Issue Number: -75 — how are my pension pots doing?
Welcome
Welcome to newsletter number -75 — yes, I am still counting down, and it is only 75 weeks until I plan to retire.
This week, I did a quick semi-quarterly review, which I don’t usually do. But as I was worried about how things were going after the last quarterly review, I felt I couldn’t leave things for an entire quarter.
Quarterly reviews
If you have read any of my previous newsletters, you will know that I do a quarterly review of how my retirement plans are going.
So far, I have written four quarterly review newsletters:
Each review follows the same format in that I look at four key areas of my plan:
Money
Job
Health
Life
And at the end of my last review, I concluded:
Money — this is a worry. Soaring inflation and poor performance of my investments might delay my retirement.
Job — I will ride out the time until I retire. I may regret this decision if I have to postpone my retirement.
Health — time for a diet! Which is what I said last quarter.
Life — there has been some progress, but I need to do more.
The money thing has been worrying me. Particularly with the stock market’s poor performance in the first half of the year, the increase in inflation and the talk of recession in the UK (see BBC: Bank of England governor defends rate hike ahead of looming recession).
One ‘bonus’ of the increased inflation rate could be an increase in savings rates as the central banks increase their base rate to bring inflation under control (see BBC: UK interest rates: How does a rise affect me?). The ‘bonus’ is improved returns on my savings, but the high inflation rate will altogether remove that benefit.
So, where do I stand?
Money
I am not a financial advisor. I am writing about what I have read over the years about money and preparing to retire. This is not financial advice.
I have my ‘pension’ split over three pots:
Individual Savings Accounts (ISAs) — these are savings accounts in the UK on which you do not pay tax on returns, and you can invest up to £20,000 per year. ISAs fall into two broad categories — managed, where the bank handles the investments and ones in which you pick stocks and shares. I have ISAs in which I make the stock picks. For more information about ISAs, see Individual Savings Accounts (ISAs).
Private pension — this is run and managed by my employer.
Savings — standard bank savings account with shockingly low interest rates.
Individual Savings Accounts (ISAs)
The first half of the year was not great on the stock markets, and I lost the money I had made on my stocks and shares ISAs.
At one point, my ISAs were back at their starting value or slightly below. Not good.
Over the last few weeks, things have picked up, the value of my ISAs has surpassed the initial investment, and I have made back about 25% of my ‘lost profit’.
But, and there is always a but, if you read any of the financial papers or blogs, a lot of them are saying that what we are seeing is a sort of mini-rally that is part of the general downward trend in the stock market. If they are correct, then I’m in for a rough time. But what to do?
I have decided to ride things out with the ISAs and reposition them. That is, as the value of my shareholdings returns to break even, I am cashing them in and re-investing in ETFs (exchange-traded funds — see Wikipedia: Exchange-traded fund) / index funds (see Wikipedia: Index fund). The idea here is that there is less risk (hopefully), I will still make some money (hopefully), and the process becomes more passive. That is, I can stop worrying about it.
Private Pension
I do have a ‘private pension’ through my work.
Over the last ten years, the benefits associated with the pension have been reduced due to poor investment performance.
However, according to the last statement, the pension has performed better than expected over the previous year. So, there may be some hope. I bet we don’t get any of the lost benefits back.
Savings
With my savings, what worries me is inflation.
Current predictions are that inflation will top out at around 15% next year. That is a lot, and it is hammering my savings. But there is nothing I can do. I am hunting around for better deals to ’soften’ the impact of inflation, but the rate of return is negligible compared to the inflation rate.
I guess it is another thing I will have to ride out.
Summary
I have concluded there is not a lot I can do:
My ISAs — at the moment, all I can do is reposition them to what may be less risky investments.
Private pension — I have no control over my private pension, and I will have to leave it to the ‘experts’ that I pay a lot of money to manage the scheme.
My saving — I will continue hunting for better deals to offset the damage caused by inflation.
Bottom line — it looks like I will have to tough it out, which will hurt. Will I have to modify my retirement plans? Hopefully not, but I think it is too early to tell.
Please note I am not a financial advisor. I am writing about what I have read over the years about money and preparing to retire. This is not financial advice.
Useful links
UK Government Website:
Next week
Next week, in issue -74, I will look at how my summer has gone. I guess you can call it the ‘holiday’ issue.
Thanks
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Until next time,
Nick
PS, If you have something you would like to contribute to the newsletter — a story, advice, anything — please get in touch.
Please note: I am not a financial advisor. My writing about money and financial matters is based on things I have read over the years about money and preparing to retire. THE ABOVE IS NOT FINANCIAL ADVICE.