Investing in retirement can result in a very different investment portfolio as your lifestyle objectives are different in comparison to when you are accumulating wealth.
A portfolio will need to replace your salary and provide you with a passive income to protect you against longevity risk, where you run the risk of outliving your wealth. It is important that your wealth in retirement allows you to maintain your lifestyle.
How Sterling Grange Financial Planning Advisers decide where to invest your money in retirement considers the following:
- Objective: The primary goal of investing for retirement is to build a financial nest egg that can support you during your retirement years. The focus is on ensuring that you have enough money to maintain your desired lifestyle and cover essential expenses when you are no longer working.
- Time Horizon: You generally have a longer time horizon, as it involves building wealth over several decades to support a comfortable retirement that may last for 20 to 30 years or more.
- Risk Tolerance: The primary concern is often capital preservation and a steady, reliable income stream during retirement. As you near retirement age, you might shift your portfolio towards more conservative investments to reduce the risk of significant losses.
- Investment Strategy: It often involves a mix of asset classes, including stocks, bonds, and cash, tailored to an individual’s risk tolerance and retirement goals. Superannuation (Australia’s retirement savings system) plays a significant role in retirement investing, with various options for how to invest those savings.
- Withdrawal Considerations: It is crucial to plan for systematic withdrawals during retirement to ensure that your money lasts throughout your non-working years. It is important to ensure funds are liquid and available in advance to facilitate a withdraw so you do not need to sell down investments, and crystalise capital losses, when the market is going through negative periods.
- Tax Considerations: Australia offers tax incentives for retirement savings through superannuation. Contributions to superannuation are generally taxed at a concessional rate, and investment earnings within the super fund are taxed at a lower rate or tax-free when you reach retirement age.
In summary, where to invest in retirement comes down to principles of wealth management and investment. Sticking to this will ensure you have a comfortable retirement while also building wealth for other purposes.
Where to Invest in Retirement areas of advice can include:
- Develop your retirement investment risk profile.
- Implement an adviser led active investment approach:
- An active approach will allow for use of our adviser expertise in managing your investment portfolio and targeting thematic market ideas.
- Invest your funds in line with your investment risk tolerance.
- Establish broad geographic and asset class exposure across the investment spectrum.
- Consider currency risk for international investment exposures.
- Consider duration and credit risk for defensive investment exposures.
- Consider the different investment style approaches of growth, value, core, or a combination of all three based on the current underlying economic market conditions.
- Consider listed and unlisted investment opportunities such as cash, term deposits, shares, managed funds, insurance bonds, ETFs (Exchange Traded Funds), LICs (Listed Investment Companies), and SMAs (Separately Managed Accounts).
- Ability to monitor cash positions to ensure excess funds can be invested based on ad-hoc opportunities.
- Receive ongoing communication regarding transactions made to your portfolio (if ongoing adviser management is selected).
- Be able to implement transactions in a timely manner (online) and to adjust your asset allocation and investment recommendations so you can take advantage of investment opportunities in times of market volatility.
- Online access so you can view your investments.
- When your portfolio needs to be reviewed, the ability to track your investments against others in the marketplace to ensure they continue to be a viable investment structure and performance is adequate in comparison to your risk return profile.