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Recent stockmarket falls have raised concerns about my retirement. The value of my investments is down but I also use them for income. How can I ensure that my income is sustainable?

Your situation is similar to that of one of my clients. Eliza has been a client for over a decade and during that time we have built up funds in pensions and investments to meet her retirement plans. She is now in her second year of retirement.

Eliza has lived through some good and bad times with the stockmarket but that was before she retired. Now the situation is somewhat different, as she will not be earning again and her resources are finite.

Eliza does have a fallback position, in that she is single with no dependents and she has a valuable property. At the moment, that is not something we need to consider.

She is a cautious investor, so she has a number of defensive investments and has retained a lot in cash. The cash holdings she has sensibly put into a variety of fixed-term investments, so that she is sheltered from the recent drops in interest rates.

When we looked at her portfolio, I was able to tell her that her portfolio had stood up well against the market drops. That is not say that it has not lost money but the attrition is not severe.

Eliza has reasonable pension income both from the state and from the annuity that we arranged for her. At the moment, she is also drawing income from her investment portfolio. We determined at our review that she would cease taking income from this portion of her overall assets. Given that Eliza has enough of a cash cushion, we are turning off the income stream from her investments and using her cash deposits to fund her income for at least the next six to 12 months. At her next review, we will discuss whether this remains a sensible option.

In terms of housekeeping, we have moved some of her investments to an Isa. Even in these difficult times, it is important to do the basic housekeeping and use tax breaks where one can. I am always optimistic about the long-term prognosis of the markets and would like to see the Isa that we have bought this year prove my optimism to be right.

I was able to reassure her that the annuity was paid from a big, secure life company that has a reputation for prudential management.

Were there to be any difficulties, she had the back-up of the Financial Services Compensation Scheme. This scheme is also available in respect of her cash deposits although we have been careful to use more than one deposit taker from different groups to ensure full benefit from the current £50,000 FSCS limit.

The interest earned on her cash may not match the suspended income from her portfolio but the judicious use of her cash capital means that her invested portfolio will be better placed to resume the income at a later date.

Amanda Davidson is a director of Baigrie Davies

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