One size does not fit all
We have the lowest interest rates in our history, and the Reserve Bank warns that we are in for a prolonged period of low rates.
But just how low can they go?
Well, there are trillions of dollars world-wide that is currently subject to NEGATIVE rates. That’s right, NEGATIVE interest rates.
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Good question. When you look beneath the surface of the Account Based Pensions offered by major superannuation funds, the answer is “quite a lot”.
How well an Account Based Pension serves you depends on its returns, and the risks taken to get those returns. Any financial planner worth his or her fee can help you structure a portfolio that provides a risk/return trade-off that meets your needs, both initially and, most importantly, over the years
The major tool to manage risk is “asset allocation”. This is a simple idea, and it relates to how much you have in safe, low risk investments, such as term deposits, cash and short term Government bonds, compared with how much you have in more volatile (but potentially higher yielding) investments such as shares, and property.
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Retirement is one of the major lifetime events. Like lots of important events, proper planning is an important key to success. Finance is not the only area, but no doubt it is an important one.
So what should you do to prepare your finances for life after retirement? Here are 5 things to get you started.
1. PAY OFF DEBTS BEFORE YOU RETIRE.
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Often when you go to a financial planner to plan your retirement, they will give you a graph to show how your capital might fare over a period.
The process is fairly simple. You start with an amount of capital, it earns interest, dividends and growth over time, and this grows the amount of capital. Deduct the amount you draw to live on, and you are left with a balance. Then, draw a graph of the balance each year, and there is your future capital mapped out.
However, this comes with at least 2 serious drawbacks.
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I’m going to stick my neck out just a bit and say that: “Retirees have got a raw deal over the last couple of decades”.
Nothing new there you might say. But, what I am referring to is the advice that has been available to retirees when it comes to investing their superannuation to produce an income stream.
And, no, this is not another diatribe against financial advisers, as the problem lies much deeper.
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Recent reports in The West Australian have shown people nearing retirement are confused, with many planning to keep working beyond the “normal” retirement age of 65.
The state of confusion is hardly surprising, given the unique financial times we are in, and the mixed and often contradictory signals that emanate from various sources (who often are pushing their own barrow.)
Talking about mixed signals, let’s start with the stockmarket. Every night, commentators fill our television screens, with graphic accounts of how much the market has gone up, or down during that day. Even if nothing has happened, they still go to great lengths to make it graphic. But, then I guess that is the nature of television. A factual statement such as “nothing much happened on the market today”, - next story please - would hardly have viewers glued to their sets. After all, there are ratings to think about, aren’t there!
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What you need to know on Sequencing and Retirement Income - John Cameron - The West Australian on August 21, 2016, 6:00 am. Video Presentation & Article: Different decades, different investment returns.
https://au.news.yahoo.com/thewest/a/32389394/sequencing-and-retirement-income/#page1
Securing Your Future' was the most viewed material on The West Australian’s website yesterday. It’s the online version of The West’s financial planning supplement. Read more here: http://us3.campaign-archive1.com/?u=1e6f34af574ca6cbaf30d3e8a&id=4d4b85dde5
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