During your working life, the big picture is about getting the things you need for you and your family, and in general, improving your net asset position (paying down debt and saving). Once we hit retirement we have to turn all the accumulation efforts into sources of income to replace the income source you had during work.
As a result, most pre-retirees in my experience are concerned about:
- Having enough money saved,
- Generating enough income, and
- Not losing money (or at least too much of it).
Once full retirement has begun, the first point is gone (barring the ability to return to work later), so the ability to make progress as early as possible in this space is important.
Putting aside appropriate strategies to save for retirement, the main issue becomes making sure you both get enough income but don’t risk your funds either.
The primary issue with these two points is:
- The more income you aim to generate from investing, the more risk you are taking
- The safer you play it, the less likely you will be able to generate enough money in retirement
As people live longer, a growing & significant proportion of the income you spend during retirement is from income you have earnt while retired through your investments. So what you might have realised is that it is not enough to just aim for “having enough money saved”, as a significant proportion of the problem is how much you generate income later.
There are two big pitfalls retirees fall into:
- Playing it too safe (e.g. all in cash)
- Having the same strategy and investment structures from when you were working (e.g. default funds)
The beginnings of a fix:
- Analysing your income requirements for the duration of your planned retirement, and assuming it will last longer than expected
- Splitting your assets up, fit for purpose
- Diversifying so you are not overly impacted by many short-term events
- Using safe investments for your daily requirements
- “Quarantining” riskier/growth assets for your long term needs, without being necessary to sell for the short term
- Taking the emotion out of your investment decisions
If these issues are important to you and you feel you are inadequately prepared please speak to us.