What should I invest in for my retirement?
May 9, 2019
Retirement is an exciting time to do more of what you love, but it takes careful financial planning to leave the workforce and keep up a comfortable lifestyle.
The financial arrangements you set in motion today will shape those golden retirement years, whether you plan to spend time with the grandchildren, travel more or get down to the golf course.
However, apart from sticking to a budget, retirees face two key challenges in managing their assets in retirement.
The first is longevity risk, where you could potentially outlive your savings.
Longevity risk is a real concern among retirees, with one in three people now living to 90 years of age.
The second challenge is sequencing risk, when there is a variation in returns from different types of investments that could have a negative impact on your capital base.
Investors approaching retirement remain concerned over the recent share market volatility and what they saw during the Global Financial Crisis because any capital losses caused by asset price movements can no longer be made up with additional contributions.
The problem is that these two challenges have opposing solutions.
You can lower your exposure to volatile assets like shares to reduce your sequencing risk and instead invest in defensive assets like cash and fixed interest.
However, you will earn a lower return over the longer term and increase the risk of running out of money sooner.
Get the right portfolio mix
It’s important for retirees to get the right mix of defensive investments to protect them from short-term market movements, in addition to growth investments to help make their funds last.
The right mix will depend on a retiree’s capital, income needs and risk tolerance, as well as the current market environment and outlook.
This means a retirement plan should be tailored to each individual’s needs rather than a ‘one size fits all’ approach.
Retirees also tend to focus on income-producing investments however, a well-diversified portfolio should include capital growth investments for optimal total returns.
Income-producing assets like dividends and distributions are essential to providing portfolio cashflow, so you have a regular income during your retirement.
However, capital growth investments keep the value of the portfolio growing and help avoid the erosion of your funds from inflation.
This is more relevant now given the low interest rates, which don’t look to be increasing anytime soon.
Ready to retire?
Are you financially ready for retirement? If you’re not, how comfortable do you feel planning it on your own?
At LDB, we’ll help you make the most of your assets, personal savings, investments and superannuation to ensure you are financially secure during retirement.
To get things underway, give us a call on (03) 9875 2900 or fill in the contact form below, and one of our experts can help you find a solution to make the most of your retirement.