COVID-19's Impact on Capital Markets and Sustainability of Retirement Plans

One of the questions we’ve been asked a lot recently is how COVID-19 has impacted the capital market and affected the sustainability of retirement plans.

My answer is that if you’ve created a robust plan, to start with, based on the sustainable withdrawal rate framework, you are stress testing the client’s plan using a hundred years plus of capital market data.

The implication of that is that you are stress-testing, the impact of the great depression, world war one, world war two, the bull and bear market of the 1960s and seventies and testing the effects of these extreme market conditions on your client’s retirement plan. You’re building a plan that works even for the worst-case scenario.

For example, in 1972, 73, market decline in the UK. Equities declined as much as 60%, and it took five years to recover, to go back to where it was at the start of that bear market. Now, if you’re applying the sustainable withdrawal rate framework, you’ve tested the impact of that type of capital market decline on your client at any point on your client’s retirement journey. And so, what we saw in March and April compared to those sort of extreme market conditions that we’ve stress-tested, you will know the vast majority of plans that we see created by advisers before going into lockdown have continued to stay on track. Of course, this is still very much an evolving process.

That’s why, to me, the sustainable withdrawal rate framework needs to be applied as an ongoing process, and that’s what Timelineapp’s Livetrack effectively does. We are continually stress-testing the plan based on, changing market conditions, changing location within the client’s portfolio and tracking how that journey evolves. So far for the overwhelming majority of plans that were created, on our platform before lockdown, we see that those plans continue to stay on track.

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Abraham is the Founder and CEO of Timelineapp. He has authored the Beyond the 4% rule book, written several industry papers and delivered many talks. He holds a master’s degree from Coventry University and an alphabet soup of designations, including the Investment Management Certificate, Chartered Financial Planner and Chartered Wealth Manager.


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