Regular readers will know how we at The Motley Fool believe investors need to keep investing during the coronavirus crisis. With earnings toppling and balance sheets coming under pressure, they need to be that bit more careful when choosing which stocks to buy. But the current crisis doesn’t mean share pickers shouldn’t stop boosting their investment portfolios.
State Pension strains
The first reason for this is that stock investors can still expect to make meaty returns. Over the long term (say, 10 years or more) average annual returns still range between a mighty 8% and 10%, even accounting for tough times like these.
The second reason is the real threat of being plunged into pensioner poverty. The number of retirees struggling to make ends meet has ballooned over the past decade as the State Pension has failed to keep pace with the cost of living. It’s up to all of us not to rely on the government to keep us off the breadline when the time comes. Reports emerging today suggest that things could get a lot tougher for people living just off the State Pension too.
Triple trouble
You may or may not have heard of the ‘triple lock.’ But its importance to elderly Britons can’t be underestimated. Put simply, it’s a mechanism that sets a minimum amount by which State Pension payouts increase. It means pensioners’ incomes rise by a minimum of the rate of inflation, the rate of wage growth, or 2.5%.
The struggles of successive governments to finance an increasingly-elderly population have put the future of the triple lock in jeopardy. Last year, a House of Lords committee suggested scrapping it entirely. And a new study from the Social Market Foundation (SMF) suggests the coronavirus outbreak may sound the death knell for the lock.
The think tank says “the fiscal costs of this crisis must be fair across all age groups” and we should alleviate the economic strain placed upon workers so “older generations must uphold their part of the contract by bearing a fair proportion of future tax rises and welfare reforms.”
This means the triple lock should be replaced by a double lock, the SMF says. This would see the State Pension rise by either the rate of inflation or earnings, whichever is higher. As a consequence “pensions would still rise, but less quickly,” the body notes.
Protect yourself
It may not happen, of course. But the fallout of the Covid-19 outbreak threatens to create unprecedented challenges for economies all over the world. And those who rely on benefits like the State Pension could find themselves under increasing financial pressure. So what can they do? Buy shares, that’s what.
The investing landscape may have become scarier in recent months. But sitting on your hands and trying to ‘wait things out’ clearly isn’t an option. With the right guidance, it’s still possible to build a big pension pot for your retirement.
But what about the risks around today? Well, those with a low tolerance for risk can take shelter with utilities companies like National Grid, food producers like Hilton Foods or defence companies like BAE Systems. Why? Their earnings tend to be more stable in times of economic, social and political turbulence like these. There’s a galaxy of brilliant lifeboats like these, in fact. So keep investing!
