Recently I went to see the Rolling Stone’s in concert. The Rolling Stones put on a great show – demonstrating that age was no barrier.
Several years ago it would have been hard to imagine a hard living rock and roll band performing into their 70’s. The Rolling Stones are a good example of how an increasing percentage of the population is living longer and leading active lives. When the Rolling Stones finally head into retirement, it’s hard to imagine that they will ever outlive their retirement savings. We would hope the same for our retirement – but increased longevity is one of the many issues facing Australians in the post retirement phase.
The old definition of working until you are 65 and retiring is becoming harder to achieve for most. You may have several part-time positions leading up to your retirement as technology and economic downturns have an impact on your employment. You may ease into retirement on less than full-time work and be retired for nearly as long as your working life. It is these circumstances that make post retirement even more important.
The following are some of the issues to consider in your philosophy post retirement:
- Sequencing risk – Poor returns in the early years of retirement when you are drawing down on your capital can have a significant impact on how long your retirement savings will last. The Global Financial Crisis (GFC) showed what a devastating impact poor returns in the stock and property markets can have on recent retirees.
- Expenditure risk – Additional expenditures need to be considered in the post retirement phase. These can range from supporting your children or grandchildren who may need financial assistance, to health and aged care costs associated with aging. Whilst these expenditures may not eventuate, what matters is how you deal with it if the issue arises and what adjustments you make to your retirement plan and the trade offs you are willing to accept.
- Implementation risk – Several strategies are available to you in minimising the impact of risks. An outcome based strategy that will help reduce risk and maintain your quality of life in retirement, is often more preferable than a traditional market orientated approach.
- Inflation risk – The generally accepted strategy in retirement is to change your investment strategy from maximizing returns to a defensive one. Whilst this strategy may reduce volatility in your portfolio, it provides very little protection against inflation and the purchasing power of your savings eroding over time.
- Longevity risk – Australia’s population is ageing and we are all living longer due to advancements in health care and awareness of staying active and healthy. You may live well into 80’s and the need to be able fund these later years is important. The likelihood of requiring aged care accommodation increases with age, and to maximise your options and benefits a large deposit is required.
Post retirement you will be faced with many choices as retirement does not exist in a straight line. There will be downturns in the share and property markets and unplanned events that can have a severe impact on your finances. It is how you are prepared for these unknown events, and how you react to them, that can have a large impact on the quality of life you live in retirement.
Planning and decision-making is vitally important to put you in the best possible financial position. You may have to prioritise the demands on your finances and plan very carefully to maximise your financial situation and use the strategies that are available to reduce the risk. Planning ahead will provide you with peace of mind for your financial future, that your affairs are in order, and that you can enjoy your golden years and live like a rolling stone.
If you would like to review your retirement philosophy so that you can have peace of mind in retirement, please call us on 0499976058.
Geoff – Follow My Footprints
Disclaimers & Disclosures
Geoff Ivanac is Sub-Authorised Representative No. 000309751 of GPS Wealth Ltd (GPS) ABN 17 005 482 726 Australian Financial Services Licence (No 254 544) and can provide the following services financial planning, risk management, managed investments, superannuation and retirement planning, margin lending and self-managed superannuation funds.
The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your GPS Wealth Ltd (GPS) Adviser before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither GPS nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.