In my recent blog, What is your retirement philosophy, I highlighted that an increase in longevity was one of many issues to be considered in post retirement planning. It was recently announced that Australia was one of the lucky four countries where the average life expectancy was now 80 years (The Risk Australian Retirees Cannot Afford – Business Spectator). Whilst this is great news for all of us, it does raise the issue of making sure you have enough money to last the rest of your life.
Finding a solution to this good problem presents challenges in the post retirement life stage for the following:
- Average life expectancy is only that an average – you may live to 100;
- Ability to return to work or delay retirement as a lot of people did after the Global Financial Crisis;
- Possibility of drawing down on your capital at a prescribed rate such as 4%. A sudden fall in investment markets, may result in your funds not lasting as long as you would like unless you reduced your draw down rate.
Post retirement planning for longevity requires a different approach than planning for financial goals such as buying a house or paying for your children’s education. These financial goals can be planned with a degree of certainty because the costs are known. Post retirement planning is more difficult because you cannot forecast the lump sum required with any accuracy because of the challenges described above.
The question you should be asking if you have just retired or are about to retire is: “What is the amount of sustainable income that I need during the different stages of my retirement years?”
Asking this question frames retirement planning in a different light than the traditional, “Will I have enough assets to last the rest of my life?”
In pre-retirement planning life stages, market based investment strategies to accumulate a lump sum are usually appropriate where you have a long time frame to ride out the ups and downs. As you get closer to retirement and you are concerned about your capital lasting your life time, it might be appropriate to change your focus from a lump sum to how much income you need in retirement to last the rest of your life.
It is important to know how you will spend your retirement and what you will do at different stages of it. In my blog 7 Step Retirement Plan, I mentioned that an essential first step in preparing for retirement was to prepare a transition or personal succession plan. A personal succession plan prepares you for the next phase of your life by exploring the following areas:
Personal succession planning helps you expand your thinking to the 10 different areas of your future life, then brainstorming many different options that you could do in each of these 10 lifestyle-areas. Once you have completed your personal succession plan and thought about what you would like to do in retirement, you will be able to have a better idea of what your lifestyle will look like and the cost to sustain it.
Longevity is one of the many issues that you need to have a plan for in retirement. By being aware of the issue, you are able to proactively put a plan in place being fully aware of the options you have and the risks involved.
If you would like to review your personal succession plan or require assistance in preparing your retirement plan, please contact us 0499976058.
Follow My Footprints – Geoff
- Like a Rolling Stone
- 7 Key Considerations for Your Investment Strategy
- Up, Up and Away
- What is My “Why” in Life
- Estate Planning for Life
- 7 Step Retirement Plan
Disclaimers & Disclosures
Geoff Ivanac is a Sub-Authorised Representative (No. 000309751) of Barsden Private Wealth Pty Ltd ATF The BPW Trust (ABN 41 153 930 799) trading as Barsden Private Wealth. Barsden Private Wealth is a Corporate Authorised Representative No.416315 of BPW Licensee Services Pty Ltd (AFSL 484 198).
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