What on earth is pound cost ravaging?
It’s the name given to the effect on your pension pot when you withdraw capital in a falling market. By taking regular withdrawals whilst the market is falling, the financial implications for your retirement pot can be dramatic, you only have to get a few years of bad returns in the early years of your retirement and it may be almost impossible to recover, even though the longer term average returns from your investments may remain strong.
You must remember that you’re effectively selling your assets when they are worth less. This is because when the price of each unit that you hold is lower more need to be sold in order to reach your required level of income.
Unfortunately, most savers simply assume that if they select a modest level of regular income, regardless as to what happens in the markets, that they’ll be able to carry on indefinitely.
In reality, taking regular withdrawals in times of market stress can destroy the health of your pension pot and therefore, investors must regularly adjust their retirement plan and investment strategy to avoid the real risk of running out of money whilst retired.
A pension is a long-term investment the fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.