Historically, retirees have been able to finish their careers feeling confident about their financial future. However, in recent years, the retirement landscape has changed significantly and there’s less certainty for many people nearing retirement age.
From the risks you can’t control to those you can, and whether your financial situation can withstand the pressures of external factors, this article will answer the question of whether or not a traditional retirement is possible in 2025 and what you might need to do to make it comfortable.
The Importance of Pension Performance
Pension pots have, on average, dipped since the pandemic due to the underperformance of stocks and bonds. Shares and bonds have had a steady recovery since then, but bonds have been unable to recover to pre-2022 levels.
The result of the turbulent market is that workplace and State Pension pots aren’t as secure as they once were and returns aren’t as high, depending on the structure of your portfolio.
For example, those with more shares over bonds have performed better than the other way around, which is an issue for those with workplace pension funds as they tend to increase bond allocation the closer to retirement age the investor gets.
Annuity Rates and Your Retirement
Lower bonds have been bad news for many investors, but they have meant that bond yields have increased. The result has been better rates on annuities, which take pension savings and pay a guaranteed income in return.
Government bond yields tend to rise and fall in line with interest rates, too, and since interest rates have been so high in recent years and are set to drop in the coming years, 2025 could be a good year to cash in.
However, even though rates could go lower throughout the year as interest rates steadily fall, they’ll still be higher than they have been for years.
Drawdown
For those planning on generating an income with their invested pension, the recovery of the stock markets has probably lined up nicely with your pension pots increasing. This creates an ideal retirement scenario and with uncertainty on the agenda for 2025, it could be worth retiring sooner if you have the chance.
Don’t get us wrong, there are also plenty of opportunities in the year ahead, but it’ll all depend on your risk appetite and the strength of your investment advice.
Your State Pension and Your Retirement
Even for high earners, the State Pension plays an important role in retirement savings. It’s guaranteed and protected against inflation, for one, which can’t be replicated with most investment portfolios.
In the UK, the State Pension has risen in the past few years thanks to the previous government’s Triple Lock. This increases the State Pension amount in line with the highest wages, inflation, or 2.5%, with 2025 being the year of the wages, which is the highest of the three.
The result could be the State Pension increase by 4.1% by next April, which is good news for those considering retirement in 2025.
Conclusion
Everybody is unique and your version of a comfortable retirement will be different to anybody else. That’s why advice is so important.
For guidance around your retirement, whether you’re planning on it in 2025 or in years to come, call 020 8366 4400 or email enquiries@cedarhfs.co.uk.