In the 30 years I’ve been helping people plan for retirement, people’s retirement goals haven’t really changed. They still want to enjoy their lives, spend time with their family, and tick off all the things they’ve always wanted to do. They also want to ensure that the money is always there and that it even grows with them in the early stages of retirement. Beyond all of that, most want the ability to pass some money on to the next generation.
What has changed are the solutions available to make these dreams a reality – retirement solutions are more innovative than they used to be. Gone are the days when you would just decide on a term deposit offered by a bank – there are now a range of products and providers out there to help you find innovative ways to improve your retirement outcomes. These could be a combination of access to government benefits, making sure that you have minimal amount of tax leakage in your retirement and ultimately that you’ve got longevity of funds.
Over the 30 years I’ve been helping people plan for their retirements I’ve noticed a number of changes. For one thing, in the earlier days life expectancy wasn’t what it is today. I’ve noticed people today are planning for a 30-year retirement. They have to sustain themselves for a much longer period of time and many people also hope to retire at a younger age if they can.
One of the biggest changes over time has been the government rules around pensions. In the past, I think many people took the view that they would simply retire and receive the aged pension. There is a growing realisation that the government is not necessarily going to pay for your retirement – you need to save up for it yourself. This is changing the way the majority of us engage with our superannuation.
Retirement solutions have also evolved to keep up with this thinking. Living off the interest from a term deposit might have been a reasonable solution when interest rates were sitting at 17%, but, again, things have changed.
Tax-free retirements have only been around for five or six years, and they represent a great opportunity for those who understand the system to take advantage of the various products on offer. Once you’ve contributed money into the superannuation system, you can convert that money, or some of it at least, into a pension. You may have heard the terms ‘allocated’ or ‘account-based’ in relation to pensions. This is typically the format that a retirement might take – it’s where, instead of you paying money into a fund on a monthly basis, it starts paying you. It’s a superannuation fund in reverse – you receive a fortnightly or monthly pay cheque and over time you look to invest and generate longevity in your capital.
A retirement account can be made up of a multitude of different investments. Everything from what we call a retail fund that invests broadly across shares, properties, fixed-interest and cash in all the various major investment markets around the world. Then there’s a scheme we call self-managed superannuation, where you can get quite granular about the investments you want to make. This can include things like commercial properties or collectables. A combination of these assets over time can help produce a retirement income.
Risk-averse clients worry about market volatility, and losing everything during tough times. Over my career, I’ve been involved in four significant market corrections or crashes, as some call them. On every single one of those occasions I believe that those who had the courage to continue to invest or even invest more at those times would say it was the best opportunity of all. These opportunistic moments are when you can really take advantage of where the markets sit.
In long-term, most people will be okay and history tends to show that. The trouble is it’s always difficult. Often the toughest time to have the resilience to make that extra investment, or even to maintain your position, is when markets are flat.
In the end though, you need to have a plan that makes you feel comfortable. In some ways, I see myself as being like a personal coach in relation to your finances – I’m there to help you run the course and see the benefits of being vested for the long term. To do this I need to understand what really makes you tick, what’s really important to you and the reasons why that is. I can then help you tailor a plan that is all about you and takes advantage of the many options that are now available to you.
Jason King is an Executive Advisor at Viridian Advisory
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