Six things to consider when investing for retirement

Many people aged between 50 and 65 are uncertain about being able to cover living expenses in retirement. In the past retirees could rely on the age pension to secure their retirement. Many retirees are now less confident about this source of support, as a growing number of baby boomers are retiring and the number of working people to support them is not keeping pace.

Governments are now encouraging Australians to save and invest on their own, so they can build income streams for retirement to supplement social security payments, and the earlier people focus on how to fund their retirement, the greater their capacity to respond.

How to set retirement goals

The first factor in retirement planning is establishing a retiree’s goals. Not everyone will have the financial resources to meet all their goals, so an adviser must help their client set priorities.

Retirement goals can be diverse, but most belong to one of three broad categories:

Essential needs

A person’s immediate need in retirement is to have an income to deal with the essentials in life, including food, housing, transport and paying regular bills. This represents the most important set of goals and requires the most pressing financial attention.

Confidence about the receipt of a steady cash flow becomes paramount. An adviser may recommend strategies centred on income-focused securities that deliver sustainable cash flow which keeps up with increases in the cost of living.

Lifestyle wants

Retirees may also want to set aside some capital to fund discretionary spending on goods and services such as holidays, hobbies, or the purchase of a new car. Attainment of these lifestyle wants enables a more enjoyable retirement, but the retiree doesn’t regard them as essential to their wellbeing. To help fund these lifestyle wants, investment strategies should grow capital steadily over time and have a low probability of producing a major or protracted decline in value.

Legacy aspirations

Finally, retirees with additional financial resources may aspire to leave a bequest for future generations.

Six things to look for when considering investment solutions

There are six key factors that advisers and investors should focus on when considering retirement investments.

  1. A predictable and reliable stream of income: Consider strategies that aim to deliver a steady income in the form of coupons from quality bonds, dividends from shares or distributions from Real Estate Investment Trusts (REITs) and infrastructure.
  2. Resilient returns: Focus on strategies that are designed to exhibit greater resilience in challenging market environments.
  3. Inflation protection: It’s important that the overall portfolio seeks to grow with the cost of living to maintain purchasing power over time.
  4. Tax effectiveness: Even though most retirees have an income tax rate of zero per cent in retirement, franking credits attached to the sustainable dividends of quality Australian companies represent a good additional source of retirement income. But it is important to watch out for potential regulatory change in this area.
  5. Liquidity: It is easier to redeem money from liquid investments when a change in circumstances may require it.
  6. Transparency of strategy: Seek strategies that are easy to understand and where the manager offers regular communications and insight into how funds are performing against retirees’ goals.

Set up success

The key is to understand retirement goals: what does success and failure look like? What do retirees want at this point in life and how might that evolve over time? What constitutes a ‘must have’; what is ‘nice to have’ and what is ‘aspirational’?

By answering those important questions, various goals can be matched with investment strategies that meet the unique challenges and risks of retirement.

 

Source: AMP Capital

 

 

 

Discover the benefits of a privately owned Licensee.

Voulla Flaskos

Source Accounting

“Capstone made everything so easy by providing all the templates and support we need which makes me feel comfortable that I am in good hands with my licensee. I would highly recommend Capstone to any fellow Accountant."

Travis Allen

Hillyer Riches Accountants

“We have gained assistance with transitioning to the new regulatory environment and provided a new service of strategic financial planning. Capstone have been of tremendous value in assisting with this transition."

Tania Magon

Maven Accounting

“I would recommend Capstone to any accountant seeking to become licenced within the financial services industry. Their personal service and support to me and my firm has been exceptional."

Anthony Buckley

Financial Planit

“I joined Capstone Financial Planning in 2003 as I was looking for a Group that could offer a high level of independence and freedom that came from not being institutionally owned."

Maria Picciani

Willow Wealth Management

“Compliance support and feedback is crucial to our business. The Capstone team are always there to assist us in improving and providing best advice and best practice standards. Their input is always positive and constructive."

KATRINA GAY

Nicholson Financial Planning

“I would happily recommend Capstone as a licensee to other advisers. The Capstone staff are friendly, knowledgeable, and professional, and they are genuinely committed to meeting their advisers' needs. I feel very secure in the knowledge that I have Capstone backing my business.”

MARK COOPER

Acquire Strategic Advisers

“Capstone’s support has been exceptional and consistent from the time our business made the transition. Capstone is continually trying to enhance their service offerings to their advisers, at both the higher level, and more specific lower levels within our business. They are an exceptional licensee and lead from the front.”

JEANETTE SCHRAM

Nett Assets

“I can highly recommend Capstone for planners seeking an independent licensee that’s not in your face but provide quality support services. Their service and support is second to none and has allowed us to concentrate on providing our clients with a premium level of service.”

BEN DREW

Paradigm Principle

“Having been with Capstone for a number of years, one thing that really stands out is their willingness to help and can do attitude. These are qualities we really appreciate.”

FIND A CAPSTONE ADVISER

PROUDLY ASSOCIATED WITH