Content provided by Defence Housing Australia
Experts say the ultimate goal for your post-work life is to achieve peace of mind.
Given interest rates have fallen to almost zero, anyone nearing retirement will no doubt be chasing investment returns from other places. Experts warn, however, that it might not be worth pursuing those extra dollars if the risks are too high.
Avoid financial stress later in life by adopting these five safe retirement-planning goals:
1. Start planning early
One of the best ways to help establish a financially secure retirement is to start planning early, so you can enjoy the wonders of compound interest.
Be realistic about what retirement looks like for you, advises Jonathan Scholes, partner of financial planning at Findex. For the first decade of retirement, expect to spend as much, if not more, than when you were working, he says.
‘And with inflation, don’t expect your cost of living will drop,’ says Scholes. ‘Be clear about your financial and lifestyle goals and, most importantly, understand your timeframe and how this will impact on your investment decisions.’
2. Know how much you need
Glossy brochures and slick websites showing happily retired couples may give you a sense of security, but if you can’t explain exactly where your money is invested and what it’s being used for, you should reconsider where you’re investing, says Financial Spectrum managing director Brenton Tong.
‘We’re in a turbulent economic environment, and it’s hard to know what’s around the corner,’ he says. ‘Try and take some of the guesswork out of the situation by using online retirement calculators to work out how long your money is going to last.’
3. Look for conservative investments
It might be tempting to chase the highest possible rate of return when looking for retirement income, but it’s imperative to consider the risks of your investment. This is even more important in the current financial environment.
Residential property can still give returns over 5 per cent, depending on where you buy. But don’t fall into the trap of buying the property down the street because you know the area, says Tong.
Scholes agrees, adding that the right secure property as an asset in retirement can provide relatively stable value, and a solid and reliable income. ‘Just because it’s where you choose to live, doesn’t make it the best performing suburb to invest in,’ says Scholes.
‘A secure property portfolio paired with a portfolio of liquid assets that can easily be converted into cash can help ensure your retirement assets can sustain your living needs and help you manage any unexpected costs along the way.’
4. Separate cashflow from investments
At various points in your life, you will need access to cash. If you need to sell investments to fund this, you have to be certain you’re selling at the best possible time to achieve a profit.
‘Since it’s not possible to plan this in advance, many people run the gauntlet and hope their investments have gone up by the time they need to cash them in,’ says Tong.
Instead of taking this approach, Tong recommends keeping cashflow separate from investment decisions.
‘If you need $50,000 in two years, make sure you know where the money is coming from without having to sell something at the last minute,’ says Tong. ‘That way, if the market is low, you’re not forced to sell at a loss.’
5. Seek professional advice
Entering the retirement phase is no time to go it alone. Whether you’re transitioning to retirement soon or you’re already in retirement phase, it’s worth seeking financial advice from an accredited and reputable financial planner who specialises in retirement planning, says Madhu Ramana, CEO of Zinger Finance.
For instance, Ramana advises: ‘All investment loans and mortgages from that point onwards should be converted into principal-and-interest repayments to build a healthy equity at the point of retirement.’