Hi Dean, I’m approaching retirement and feeling anxious about the loss of my employment income. How do I structure my retirement ‘nest egg’ to last?
Regards,
Sophie, Freshwater
Hi Sophie, thanks for the question. I’m excited for what lies ahead for you in this next phase of life!
With retirement on the horizon, there’s an array of emotions you will be experiencing, and understanding whether you can continue living the life you want is naturally top of mind. After many years of receiving a regular income, it can be a challenging adjustment to start relying on your accumulated ‘nest egg’ to fund your retirement lifestyle. Managing this ‘nest egg’ to last you the next 30 to 40 years and beyond is also a completely new skill set to learn. So, to your question, how do you manage and plan for this?
Investment returns are typically at the forefront of this discussion, but this often takes focus away from the underlying strategies at play, which are fundamental to achieving a long- term return. It could be argued that the underlying investment strategy is just as, if not more important than, the investment returns, as this allows retirees to manage risk, a key contributor to the overall return of a portfolio.
To achieve a tailored solution, we look at a number of factors. These include the income required in retirement; the asset base you’re working with to generate a desired income; and given these two factors, the level of risk you would need to take on to achieve this objective.
As we know financial markets are volatile in the short term. The structure of the portfolio is paramount to segregate volatile assets to be invested for the long term, without having to sell out during periods of downturn, known as sequencing risk. To manage this, we look at less volatile asset classes such as fixed income, credit and cash to provide an income-focused return which allows portfolios to be self-sufficient over shorter-term time frames and get through tough market conditions.
Although the initial process of portfolio construction is crucial to solid foundations for the future, it is just as important to review the portfolio on a regular basis to ensure that the asset allocation remains within risk levels you are comfortable with. As a recent example, over the last 12 months both domestic and international equities have experienced exceptionally high returns, resulting in portfolios becoming naturally more aggressive and volatile as this piece of the pie grows. Now may be a good time to review this risk.
To understand more about this process, it’s a good idea to seek advice from a qualified financial advisor who can provide personalised guidance based on your individual financial situation and build a strategy tailored to your retirement goals.
If you have any questions, please speak with your financial adviser, or call me to discuss on 8376 0350.
Regards, Dean.
Financial planner Dean Cowdroy of Up Wealth Management is an Authorised Representative of Consultum Financial Advisers Pty Ltd, AFSL 230323. Phone 8376 0350 or visit upwealthmanagement.com.au
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