Almost every decade, financial markets seem to implode, shattering the dreams of many pension savers to sail peacefully into retirement.

Financial markets continue to perform erratically. This is arguably one of the most challenging times for retail investors to decide where best to invest their money. Many in or near retirement might soon need to fix their cracked retirement pots.

Orthodox retirement planning is often based on adopting a formula of financial investments in equities and bonds with increasing reliance on fixed-income securities the nearer one gets to retirement. The market conditions of today are dominated by high inflation that is driving interest rates higher, leading to significant falls in the value of equities and bond prices.

A too benign monetary policy for over a decade saw price appreciation in both markets surge. Many savers rejoiced at how their retirement portfolio was appreciating. An illusion of wealth was created. This illusion is becoming a nightmare for some already in retirement or about to retire in the next few years.

There are so many personal circumstances that it is difficult to make even generic recommendations to help savers fix their cracked retirement pots. Still, some guidelines might help.

The first question that needs to be addressed is: what can pension savers do in the present circumstances?

The first step for many will be acknowledging that their financial asset allocations must be recalibrated. This acknowledgment is likely to come with a high risk of emotional pain. Some assets may have to be sold at a loss, with proceeds invested in other assets with a better chance of growth in the short and medium term. Thinking rationally rather than emotionally is the best antidote against attacks of panic.

One needs to emphasise that falling markets offer good opportunities to buy financial assets that would appreciate more in the medium term than the inflation rate. Those still a few years away from retirement must not be stricken by inaction, fearing that the drop in asset prices is nowhere near hitting bottom.

Unfortunately, those already in retirement have more difficult decisions. History indicates that markets usually take about five years to recover from their lowest depths. Still, no one knows which direction the financial market will likely go in the next year or two.

Thinking rationally rather than emotionally is the best antidote against attacks of panic

Some may not have the luxury of waiting. They might need to sell some of their investments to support their retirement income for day-to-day living expenses. This often amounts to wealth destruction that financial advisers call ‘deep risk’. Put simply, there is no satisfactory way to deal with this risk unless one has sufficient buffers in the form of on-demand bank savings to help ride out the uncertain market phases.

Many still have low risk tolerance and deal with this reality by holding most of their savings in safe bank accounts. In the last decade, these savers have struggled as low interests saw their capital and income shrink. Banks often see these circumstances as an opportunity to promote higher risk and higher income generation products.

Every pension saver must decide how much to put in their ‘growth-seeking pot’ and how much to leave in their ‘safety pot’. Advice from independent experts is almost always good insurance for making the right tailor-made decisions on asset allocation.

A mistake repeatedly made in the last decade was that of hard-pressed savers seeking to maximise their income by buying non-investment grade corporate debt. This is never a good strategy.

We all need to learn lessons from every crisis we must live through. Some lessons have a universal time value. A long-term investment plan is the first requirement for all, irrespective of their age. Those decades away from retirement may have other more pressing priorities and believe retirement is a distant mirage. The earlier one starts to put some money away to build a retirement pot, the less the risk of this pot being irreparably damaged by a future market crisis.

For those nearing retirement, it is wise to have a safety pot that will enable them to gradually withdraw up to five years of spending without touching their growth-oriented pot. This could come with some initial pain as safe assets often pay low interest, possibly even lower than inflation. Still, this strategy will likely give you the peace of mind we all aspire for in whichever stage of life we are in.

The last thing one needs in retirement is worrying about where the money to buy essential and small luxuries will come from.