The major issues facing retirees (and pre-retirees) can generally be summarised as:
- Longevity – how long will you live for and will your capital last?
- Inflation – will your money be able to retain its spending power?
- Income – where will your income come from?
Life expectancy is ever increasing, and this trend will continue due to the amazing amount of medical breakthroughs and increased knowledge on healthy lifestyles. The problem is that as we live for longer we also need to support ourselves for longer in retirement.
It is up to each person to plan well, increasing the likelihood they will have enough assets to last throughout retirement.
The second issue facing retirees is whether their capital can keep pace with inflation.
High-inflationary periods can erode capital over time if the person has not allowed for sufficient exposure to growth assets. Having a large allocation to cash can actually be detrimental to a portfolio over the longer term.
To keep pace with cost of living over time it is imperative an investment portfolio has some exposure to growth-type assets. How much exposure will depend on each person's capacity for risk.
Income sources in retirement
The three main sources of income in retirement come from:
- non-superannuation – eg. shares, property and fixed interest; and
- Centrelink benefits
The capital required to provide income from the first two sources will vary depending on how much is needed in retirement, a person's age at retirement and how long funds are needed to last.
How long a person continues to derive income from capital will depend on how much is spent each year – and how much a person actually "spends" could be different to what they had "planned" for.
Of course, Centrelink is there to supplement other income if the person qualifies for benefits.
Find out more
Now more than ever it is important to understand the issues you may face in retirement and what can be done to minimise the risks.
To discuss this topic in more detail, please book an obligation-free discussion with an adviser from your local Morgans office. Simply fill in this form (or click on the button below) and a member of our friendly team will be in touch to arrange a convenient time.