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08 Apr 2013

Retirement Income Highly Dependent On Timing And Stock Market Performance

According to a recent study from insurer AXA, retirement income in the UK surged from a post-crisis record low level in the first half of 2012 to a post-2007 high within just seven months, which could explain the vulnerability to stock market fluctuations of some people saving for retirement.

To illustrate the effects market volatility has on the pensions market, AXA said that by making an initial investment of £315,711, a man ending his professional career in January 2013 would have £555,497 in pension savings after investing 10 years in the stock market. By comparison, a person who invested the same sum just seven months earlier would have ended up with a significantly lower pot of just £330,348.

If the pots were used to buy an annuity, the sum accumulated by May 2012 would have resulted in an annuity income of £17,731, which is well below the £31,138 his counterpart retiring in January 2013 would have generated, FTAdviser reported.

The notable difference in income levels produced in the space of just seven months confirms that the timing of retirement and stock market volatility can impact dramatically upon retirement incomes, Simon Smallcombe, head of guaranteed distribution for AXA UK, commented.

Smallcombe advised people to take measures to safeguard their retirement savings from volatility at a time when the stock market keeps sliding downwards, as just a few bad days where the stock market drops could make a huge difference to retirement income.

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