Risking your retirement

If you're retired or approaching retirement, and dreading the next piece of news that may cause your portfolio to dip, then it might be time to revisit your asset allocation.

If you're already retired or on your way to retiring, have you been obsessively checking your portfolio balance and dreading the next piece of news that might cause it to dip further? Or have you been keeping up with the news as you usually do, but confident that your portfolio will largely weather the volatility it is currently experiencing?

If you nodded at the former, it's a good indicator that you may need to revisit your asset allocation; it's likely that it is no longer aligned to your risk appetite and thus unlikely to achieve the goals you've set out in the time horizon you have.

If you said yes to the latter, good on you – you've likely set yourself up well. But whether or not you're feeling comfortable with how your portfolio is doing, it is important to regularly think about the risks that you face as a retiree (or a soon-to-be-retiree), and put in place strategies to mitigate them.

Market risk

Without a regular pay check to counterbalance capital losses, retirees inevitably feel it more when market volatility is in play. But while you cannot control the market and what it returns, you can control your discretionary spending. Temporarily reducing your spending could help alleviate financial stress through this momentary dip. And spending plans can resume once markets are back in the black.

Inflation risk

Inflation continues to be a hot topic but the risk it brings is nothing new. Planning for inflation should be part of your investment strategy. Also don't get caught out during your retirement planning process – using ‘real returns' rather than ‘nominal returns' is important when punching in the numbers.

Longevity risk

Australians are living longer than we ever have. According to the Australian Bureau of Statistics, the average person can now expect to live past 81 if you're male, or 85 if you're female. You should plan for your retirement savings to last you at least 16 years and possibly up to 30 years, assuming you retire at 67. And if you're retiring before 67, plan accordingly. Don't forget to factor in expenses to account for health issues as you age.

History has shown that investors who remain invested in the financial markets despite troubling headlines are rewarded when the market eventually picks up. As such, maintaining discipline and focusing on the long-term will help you navigate the years ahead.

 

 

Vanguard
15 Feb, 2022
vanguard.com.au

  • Tax tips

    The more detail you can give your accountant the quicker your tax return can be processed and, usually, the better the outcome. The following will help.

  • Super, Death, and taxes

    An interesting finding in the federal government's Retirement Income Review report is that many Australians are dying with the majority of the wealth they had when they retired.

  • ATO responds to GST case involving SMSF

    The ATO has issued a decision impact statement on a recent decision that determined whether an SMSF was liable for GST on the sale of subdivided lots.

  • ATO statistics show 12 per cent jump in SMSF assets

    The total value of SMSF assets has climbed to $892 billion during the 12 months to March, according to the latest ATO statistics.

Create Financial Planning ABN 92 115 963 445, trading as IT Financial Services, is an Authorised Representative of Consultum Financial Advisers Pty Ltd, ABN 65 006 373 995, an Australian Financial Services Licensee with its registered office at Level 6, 161 Collins Street, Melbourne VIC 3000.