Are you prepared for Retirement?

A couple looking to achieve a comfortable retirement will need to spend $55,316 a year, while those seeking a ‘modest’ retirement lifestyle need to spend $31,767 a year,” ASFA Retirement Standards Report Nov 2011. How well are you prepared?

Longevity
Our life expectancies are ever increasing. This trend is due to the amazing amount of medical breakthroughs, as well as our increased knowledge on healthier living. So we need to support ourselves for longer in retirement.

Inflation
Can our capital keep pace with inflation? High-inflationary periods can erode capital over time to keep pace with increasing living costs it is imperative an investment portfolio has some exposure to growth-type assets such as shares and property.

Income Sources
The three main sources of income in retirement come from:

• Superannuation – as an income stream and/or lump sum benefit.
• Non-superannuation assets – income from shares, property, cash and fixed interest.
• Centrelink – age pension or other benefits.

How long you continue to derive income from your saved capital will depend on how much you spend each year. Although Centerlink is there to supplement income if you qualify, most people’s objective is to be self-funded, or largely self-funded, in retirement.

Retirement Portfolio Strategies
Consider our following tips that may help you manage your financial position in retirement.

For Defensive Assets:

• Try to hold 3 to 4 years of pension income payments in cash. Providing time to reflect on current markets, and avoids having to sell assets in low markets to fund superannuation payments.
• Maintain diversification of income assets with potential for growth. Many quality fixed interest investments pay reasonable income with some equity characteristics but without the same risk.
• Consider having two years of payments in short term money market funds/instruments. These instruments pay slightly higher rates than normal “at call” cash accounts.
• Your aim is to preserve capital so if you need additional funds to cover larger lump sum expenses draw from your defensive assets where possible.

For Growth Assets: * Maintain growth assets for at least 5-7 years without accessing, to achieve reasonable growth to manage longevity issues.

• Maintain a good spread of growth assets. Diversification is the key to minimising capital losses during volatile periods.
• Consider some capital protection strategies if required.
• Take advantage of shares that offer franking credits. The pension phase in super is tax free so franking credits are fully refunded back into the account.
• Review your portfolio and re-balance regularly as required.

It’s important to plan ahead and not to leave it to the last few years before you retire. Talk to your adviser now.

This article does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever.

Accounting

Peter Fowler

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