Can you afford to retire in 2024?

From interest rates to inflation and the economic climate, there are plenty of factors to consider if you plan to retire next year – here is how to prepare

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It has been an interesting time to retire this year with high inflation and interest rates weighing on pension pots and stock market performance, but what are the prospects for retiring in 2024?

Rising interest rates have provided a boost for people choosing to take an annuity to help fund their retirement this year, but it has been less certain if you have stayed in drawdown, leaving you at the whims of market uncertainty.

Older investors who are considering retiring will be going into 2024 wondering when interest rates will be cut and amid slowing inflation, but there are also fears of a recession, which could hit stock market performance, affecting pension pots in drawdown.

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We consider the factors that could make 2024 a good or bad year to retire.

Make use of the state pension

Pensioners will also be boosted by a rise in the state pension from next April.

It will increase from £203.85 to £221.20 from April 2024 or to £11,500 per year.

This is a decent sum but it is below the £13,000 per year that the Pension and Lifetime Savings Association estimates a single person will need for a minimum living standard.

It is also quite far off the £23,000 or £37,000 that it predicts someone would need for a moderate or comfortable retirement respectively.

So you are likely to need more sources of income.

Annuity rate revival

Annuities have long-been ignored by retirees due to poor rates.

But annuity rates have become more attractive this year as pricing rose in response to rising interest rates and gilt yields.

Research by Hargreaves Lansdown shows a 65-year-old with a £100,000 pension could now get up to £7,149 per year from an annuity – a massive 44% increase on the £4,953 they could have got two years ago.

Opting for an annuity while rates are high could give you a decent guaranteed income throughout your golden years plus you could even link it to inflation.

“Annuities are certainly more of an option than they have been at any point in the last decade and we are having more conversations about these,” says Joshua Gerstler, chartered financial planner at The Orchard Practice.

A flexible retirement option

While annuities provide certainty, you may miss out on investment growth and the ability to access the funds as and when you please.

Many analysts are expecting an uncertain year in 2024, with expectations of a recession or a ‘soft landing’ or low levels of economic growth.

Retirees may favour more flexibility during uncertain times by keeping their pension pot invested so they can access more money if needed or leave the rest invested.

Using pension drawdown provides an option to do this.

But the main issue with accessing your pot is timing.

“Many approaching retirement will have watched in horror in 2022 as both stocks and bonds - the two assets most likely to comprise the bulk of pension pots - fell in tandem,” says Ed Monk of Fidelity International.

“High inflation and high interest rates combined to push both assets lower - particularly painful if you know you’ll soon need your pot to start generating an income.

“As 2023 draws to a close there has been a recovery but retirement funds are unlikely to have regained all the ground lost.”

Monk highlights that a fund made up of 60% equities and 40% fixed income assets lost more than 15% between the market high at the start of 2022 and the low in October of that year and still remains 9% below its peak.

It is important to consider how much you take out of your pension pot each time to ensure you don’t run out of money.

That may be more tricky with inflation still relatively high at 4.6% and energy bills set to rise again in the new year.

One often cited method is the 4% rule.

This suggests retirees withdraw 4% of the value of their pension fund in the first year of withdrawals and increase that by the rate of inflation each year. This is supposed to last a typical retiree 30 years.

Believe in buy-to-let?

Investing in the property market has traditionally been seen as a viable option for people to fund their retirement.

Buy-to-let landlords have benefited from low levels of supply and record high rents in recent years.

But there are warnings that affordability pressures and reduced demand could mean rental growth slows next year, hitting the retirement plans of many.

For example. Zoopla estimates that UK rental growth will halve to 5% by December 2024.

Many landlords are also exiting the sector due to restrictions on tax reliefs while higher buy-to-let mortgage rates may also hit property investing profits.

 The key factor, whatever way you are funding your retirement, is planning

“The plans we build for our clients make the assumption that the year they retire will be a ‘difficult’ one, ie. in the midst of a stock market crash or some other crisis,” says Ross Lacey, director at Fairview Financial Management.

“Using this kind of approach means we have an all-weather strategy for dealing with external factors outside of anybody's control, and our clients have more confidence they can still do what they want.”

Marc Shoffman

Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.