Planning for retirement
It’s always easier to make progress with retirement planning when there are steps you can follow.
In this article, we’ll outline some steps for growing your money in retirement and discuss how to adjust your investment risk as you near retirement.
Retirement planning: growing your money
Retirement planning doesn’t end when you stop working; in fact, it becomes even more pressing as you move into this new phase of life. Here are a few steps to help you continue to grow your money in retirement:
- Assess your financial situation – Before making any investment decisions, review your financial situation. Work out your income, expenses, assets, and liabilities to get a clear idea of your overall financial health and retirement readiness.
- Create a budget – Develop a realistic budget that will cover your retirement goals and lifestyle. Factor in expenses such as housing, healthcare, travel, and leisure activities, and identify areas where you can reduce costs or make adjustments if needed.
- Diversify your investments – Diversification is key to managing risk in retirement. Spread your investments across various investment options, such as shares, bonds, and real estate, so that you’re not overexposed to any single market or economic downturn.
- Consider income-generating investments – Look for investments that provide a steady stream of income, such as dividend-paying shares, bonds, rental properties, or annuities (a form of investment entitling the investor to a series of regular payments).
- Monitor and rebalance your portfolio – Regularly review your investment portfolio to ensure it still meets your financial goals and risk level. Rebalance your portfolio as needed and adjust for changes in market conditions or your personal circumstances.
- Stay informed and seek professional advice – Keep yourself informed about market trends, economic developments, and changes in tax laws that may impact your retirement investments. Consider meeting with a financial adviser or retirement planner to help you develop a retirement strategy that meets your needs and objectives.
- Manage withdrawal rates – Be aware of how much you’re withdrawing from your pension each year to avoid going through your savings too quickly. For an account-based pension, the minimal drawdown rate for under 65s is 4%, gradually increasing to 14% when the member turns 95.
- Plan for healthcare costs – Healthcare expenses can be a major burden in retirement, so it’s very important to factor them into your financial plan.
Retirement planning: adjusting investment risk
As you approach retirement, you may need to rethink your investment strategy to reflect your changing financial needs and risk tolerance.
Here are some considerations for adjusting your investment risk when nearing retirement:
- Consider moving towards capital preservation – As you near retirement, you may want to put capital preservation before aggressive growth. Moving part of your investment portfolio into more conservative assets, such as bonds, can help preserve your retirement savings.
- Reduce exposure to shares – While shares historically offer higher returns over the long term, they also come with risk. You may want to consider reducing your exposure to shares as you approach retirement to minimise the impact of market downturns on your portfolio.
- Focus on income generation – Shift your investment focus from growth-oriented assets to income-generating investments that provide a steady stream of cash flow. Dividend-paying shares and bonds can help top up your retirement income while offering more stability.
- Consider your longevity – Plan for the possibility of living longer than expected and the impact it may have on your retirement savings. Consider an investment that offers protection against inflation and longevity risk, such as annuities or inflation-indexed bonds, to help ensure income security throughout your retirement years.
Retirement planning: key takeaways
Growing your money in retirement requires careful planning, prudent decision-making, and ongoing management of your investment portfolio.
By following the steps outlined above and adjusting your investment risk as you near retirement, you can improve your financial security, protect your retirement savings, and enjoy a comfortable and fulfilling retirement lifestyle.
The right financial advice can also help you get the most out of your super and retirement savings. Start the conversation with one of our friendly finance coaches today.
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the Insignia Financial group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at June 2024 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. It is recommended that you consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) before you make any decisions about your superannuation. You can obtain the latest copy of the PDS (or other disclosure documents) and TMD by calling us on 132 652 or by searching for the applicable product at mlc.com.au. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.