Correlation does not always imply causation, especially in finance, but you can count among the peripheral consequences of ‘Brexit’ a serious spike in the price of future retirement income.
In the wake of the UK’s surprising decision to exit the European Union, global market volatility has spiked, along with the estimated up-front cost of purchasing deferred annuity income.
This is according to BlackRock’s CoRI Retirement Indexes, which enable investors to estimate how much annual retirement income their current savings could generate if converted to annuities commencing payments at age 65.
“Since the ‘Brexit’ vote on June 23rd, the CoRI indexes have spiked upward by nearly 10%, meaning that pre-retirees now need to plan on having nearly 10% more in retirement savings than before, in order to buy the same level of deferred income,” BlackRock warns.
The CoRI Indexes are backed by the firm’s analytics and enable an investor or adviser to calculate either of two critical figures: how much estimated annual income an investor’s savings will provide throughout retirement, or conversely, the level of savings an investor needs to generate a desired amount of annual income throughout retirement. However one cuts the latest data, it doesn’t look good for already cash-strapped investors.
The most recent movement in the CoRI 2025 Index, for example, shows a clear upward trend since June 23, while the S&P 500 equity index remained essentially flat, thanks to stronger performance over the last few trading days. But, according to BlackRock, the CoRI and the S&P 500 moved rapidly in opposite directions for an uncomfortable period following the Brexit vote, “meaning investors are facing lower returns from the S&P 500 at the same time that the cost of retirement income is getting dramatically more expensive.”
Additional findings and past results from the BlackRock CoRI Indexes are presented here.