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How stock market falls affect your retirement income

As stockmarkets tumbled around the world last week following the economic crisis in China, the impact on pensions is being felt at home. If you think you'll be affected, there are some things you can do now.

Hit hardest could be anyone who has taken advantage of the new pension freedoms to take more of their retirement income through income drawdown.

Income drawdown is a way of using your pension pot to reinvest it in funds specifically designed and managed for retirement.  Funds can include equities, such as stockmarket shares. Many people who use income drawdown, use it to take a regular income to live on in retirement.

However, as last week’s sharp falls show, being over-exposed to the ups and downs of the stockmarket is much more risky when your money has to last you for the rest of your life.

If you’re already using income drawdown

If you’re already in an income drawdown arrangement and are worried about the impact this may have had on your future retirement income, it’s important you get some financial advice as soon as you can.

A good financial adviser will review your portfolio with you and make sure it’s set up to meet your individual needs.

Read more about how find one in our guide Choosing a financial adviser

If you’re thinking about using income drawdown

If you’re getting close to retirement, and are thinking about using income drawdown as a way to fund your retirement, it’s important to consider whether it’s right for you.

Think about :

  • What you need your money for. You should have a balance of secure income that will cover all your essential outgoings and a flexible income that you can use for any extras.
  • Making sure your money is placed in a good mix of investments and savings to give you a balanced portfolio. These can include: cash, bonds, fixed interest products, such as annuities, as well as equities.
  • How you will monitor your investments
  • Using income drawdown needs careful on-going financial planning.

A great starting point is to use our Retirement Income Options tool where you can compare different retirement and income options and get guidance on your next steps.

If you still think income drawdown might be for you, it’s really important to get advice from a financial adviser who specialises in retirement planning before you enter into an arrangement.

You’ll also need to hold regular reviews with them to look at how your portfolio is performing and make any adjustments if you need to.

Video: Paul Lewis talks about what you'll need in retirement

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