What is the secret to successful retirement planning? It’s a daunting question but one we are all destined to face. Some of us will simply put it in the ‘too hard basket’ and end up with an ad hoc approach. Others will want to take a more proactive approach but may not know how to go about it or what steps to take.
Macquarie Wealth Adviser, Cindy Excell, has worked with many people in exactly this situation. “In my profession I see the thrill of anticipation that people feel about finally being able to do more of the things they enjoy in retirement. But I also see the uncertainty they feel about the planning needed to make it the worry-free time of life that it should be.
“Everyone has different priorities and desires, so my role as their financial planner is to help them identify what their ideal retirement will actually look like and then break down the planning steps that will get them there without financial worry.”
One key question
To bring your retirement future into sharp focus, Excell says simply ask yourself, “What is the biggest change you would like to make in your life once you're retired?” It’s a question that can uncover so much and can really inform a person about their retirement planning.
“For some, it might be a change to where they live, such as moving out of the family home into a different area and different type of living arrangement,” explains Excell. “For others, it might be more about seeing the world and soaking up new experiences.”
“It is so critical to have this conversation first because it's only when these desires are uncovered that we can start to plan how these changes will be funded,” she adds.
Ultimately, Excell says the aim is to work back from this 'big picture' retirement question, to figure out the building blocks of a retirement budget and the strategy that will make that budget work.
A major misconception
When asked about the biggest misconception people have concerning retirement, Excell identified one that really stands out above all others:
“Having spoken to hundreds of people about their hopes and fears around retirement, the biggest concern is that they want their money to be safe. This is understandable because they know they have to depend on that money to see them through for many years. The danger in focusing purely on safety, without any regard to growth opportunities, is that you may risk outliving your retirement savings,” Excell explains.
“People want to leave work earlier and they are generally living longer, so retirement saving adequacy becomes critical. The rising costs of living and reducing purchasing power must be factored in for planning to be realistic. There may also be unexpected issues such as medical costs or a sudden change of family situation that can have significant financial impacts.”
So, what is the best approach? Excell says having a long-term investment strategy is vital to provide growth opportunity, but to also ensure “the investment plan is within their ‘comfort zone’ in terms of their attitude toward risk. A more strategic approach to asset allocation can make such a difference to a person’s portfolio in retirement.”
A smarter strategy for all contingencies
Excell shared some of the finer points of setting up the right investment strategy for retirement.
“Superannuation is not a ‘set and forget’ type of investment. Markets can be volatile, so positioning your investments carefully, before and after you retire, is essential. This is where working with a qualified professional who can help you manage risk and return is so vital to making retirement savings last.
“You need a long-term investment strategy, but you must also have tactical flexibility and a diversified portfolio to cope with market changes. For example, it is important to have a drawdown option in a pension portfolio. This might mean holding some funds in a defensive asset class like cash, so that if there is a market downturn you can avoid selling growth assets, while maintaining income stability. It's these kinds of subtle yet profound planning choices that highlight the value of getting professional advice.”
Taking the first step
Excell encourages those approaching retirement to seek advice that will give them a better perspective.
“The important thing is to realise that you don’t have to face retirement alone. Find a financial planner who you can trust, who can explain your options and help you understand the ‘big picture’ as well as the finer details of investment planning. This can take much of the worry out of the process and give you a real sense that you are in control of your own destiny.”
What do you see as the main benefits of seeking professional retirement advice? Share your thoughts below.
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