A few months back, my wife and I decided we should book a holiday for early July. We booked a week at a hotel in Newquay, Cornwall. At the time there were next to no Covic infections in Cornwall.
About 10 days before we were due to go, I looked at the infection map on the government’s Covid dashboard. Alarmingly, Cornwall was now above the UK average for Covid infections; even more worryingly, Newquay had one of the highest rates of infection in the country.
We were both fully vaccinated several weeks ago and should now have maximum protection. Was there any risk?
The risk was not to us. We both had Covid in the early days, myself with mild conditions, my wife was quite ill with it. Since then, she has had a slow recovery and is under our local Long-Covid clinic and her Asthma has got worse. We were looking forward to a change of scenery and fresh sea air in the hope it may speed her recovery.
More importantly, we have a 93-year-old family member who lives with us. For a 93-year-old she is healthy. Yet she has many frailties that could make her very vulnerable if the virus were able to beat the protections the vaccine has given her.
We also come into contact with a number of young adults, who have yet to receive their vaccine or full vaccine protection. They in turn have young children who associate with other young children. While we are not at much personal risk, travelling to and from an area with high infections could mean we bring back the virus into our own community.
Fortunately, I booked the holiday on the basis that cancellation more than 48 hours before the arrival date did not incur a fee. Eastbourne has an infection rate of less than 10% of that of Newquay and that is where we ended up.
This all shows that you cannot eradicate risk from life, particularly retirement. However, you can take steps to mitigate risk.
Following the introduction of pension freedoms, more retired households are becoming dependent upon pension drawdown for their retirement income. Pension drawdown is not a risk-free product. A few years of negative market performance could mean retirement plans like our holiday have to be revisited.
A good adviser will have matched the underlying investment portfolio with the expected spending pattern to ensure there is a high probability that the retired household will not run out of money.
There is a saying, ‘Buy low and sell high’. No one knows however when the lows and highs are. Markets could go lower; they could go higher. The risk with pension drawdown is that to take regular income you must be selling at market lows and market highs.
If in the early years you experience more lows than highs, you may have to rein in your retirement spending. More highs and you may be able to increase your retirement income.
For many retired households, there is however a mitigant. Some 70% own their home outright. Equity release drawdown products are now very flexible. If used in parallel with pension drawdown they may improve the duration over which income could sustain from the pension drawdown product. It could also permit a higher amount of retirement income.
If, during periods when it is inadvisable to sell pension drawdown assets for income, the required income was drawn from the equity release product, the pension drawdown assets would have better protection.
Equity release drawdown should therefore become one more tool in a retirement adviser’s armoury. It could save more than just a trip to the seaside.
Bob Champion is chairman of the Air Later Life Academy