When – and how – should you retire?
The answer to this question is never simple. We approach retirement armed with a lifetime of experience but at the same time we have no idea what to expect. Making the transition with confidence requires careful attention to many interconnected issues.
Individual experiences will vary widely, influenced by a host of factors, including family circumstances and the prevailing economic and market environment. But there are a few crucial questions everyone should consider in making a retirement plan.
The overarching goal: to make sure you can live the lifestyle you want for the rest of your life.
How long will you live?
It’s not a pleasant thought, but contemplating how long you will live matters hugely for retirement planning. Longevity risk, or the potential to outlive your retirement savings, is by far the biggest worry cited when moving into retirement. This life stage may last 30 years or more, so be conservative by building a retirement strategy that aims to cover spending needs for that timeframe.
How much will you spend?
Whether it is a percentage of pre-retirement income or a percentage of wealth at retirement, rules of thumb can provide helpful guidance as to what you can afford, but in practice they are impractical and inefficient. A more fluid approach to drawing on savings that adapts withdrawal rates and asset allocation in response to changes in economic and market environments and shifts in personal circumstances can produce a better outcome. Because it’s a flexible approach it can help protect against the risks of outliving savings while maximising spending over time.
What’s your house worth?
A family’s home is often thought of as their biggest asset, but depending on mortgages and other costs, it can also be a considerable ongoing expense if repayments or maintenance expenses are high. If you plan to pay down all or part of your mortgage before retirement, make sure the decision won’t jeopardise long-term retirement funding and risk making you ‘house rich and cash poor’.
How fast will prices rise?
Rising consumer prices and higher inflation is the scourge of any fixed income investor because over time rising prices eat into what that income can buy in ‘real’ terms. Investment strategies for retirement should include growth and income-generating assets to help protect against the corrosive effects of inflation.
Thinking about transitioning into retirement is both exciting and a little scary. Uncertainty is inevitable: There is no perfect time to retire or perfect retirement plan. Focusing on the issues and risks discussed here – and asking some tough questions – should help you make sensible choices about when, and how, to retire.
Speak with your OBT financial planner to discuss the timing of your retirement today on 5462 2277.
Rodney Turner and OBT Financial Group are Authorised Representatives of Lonsdale Financial Group Ltd ABN 76 006 637 225 | AFSL 246934.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change. This information and certain references, where indicated, are taken from sources believed to be accurate and correct. To the extent permitted by the Law, Lonsdale, its representatives, officers and employees accept no liability for any person that relies upon the information contained herein. Information is current at the date of issue and may change.
Source J P Morgan