Your accumulated savings pool is likely to be highest in the years nearing retirement – and just after you retire. Investment decisions made at this time can greatly impact your income down the track.

The risk they don’t talk about in the papers

When it comes to investing we are all familiar with the most common definition of risk; investment returns can and will vary. But risk needs to be considered in context of not achieving your objectives – and how a lesser known risk called ‘sequencing risk’ impacts whether or not you meet your goals.

Critical investment period near retirement

Returns matter the most when you have the most capital at risk. Sequencing risk relates to the order in which returns occur.

Rather than just assessing how assets go up or down over a given time horizon, the path of the return also needs to be assessed. This is because your outcome will be a function of both the investment returns achieved and the size of your investment savings. Let me show you with an example.

A poor investment outcome at the wrong time can be very costly

Consider an investor in their accumulation phase who saves $10,000 each year for 10 years. In the below two scenarios, the investor experiences a large negative loss over the course of that decade. In Scenario 1, the investor experiences the loss in the first year, while in Scenario 2, the loss occurs in the final year of their investment.

Both scenarios have the same compounded annualised return and volatility. If you were to read about these returns in the newspaper at the end of the decade, the returns would be the same under either scenario. But the dollar outcomes for the investor are vastly different.

Timing Matters: different outcomes due to different timing of returns

In Scenario 1, the market decline occurred early and impacted savings when the accumulated investment balance was low. In Scenario 2, ten years of savings contributions and years of steady market gains were impacted by the poor returns in the last year.

The difference for the investor who experienced a draw down in the last year was -17.1%. A poor investment outcome at the wrong time can be very costly.

The value of seeking expert advice

Why haven’t you read about sequencing risk more often? Financial markets don’t experience sequencing risk, only investors do. It relates to where you are in your own working/retirement journey and the savings balance you are accumulating ahead of retirement.

Investment strategies are available that aim to improve the outcomes during this important ‘transition to retirement’ phase. These strategies aim to reduce volatility and improve the stability of returns.

This highlights the benefit of seeking expert financial advice to assist with these challenges. Your financial planning adviser can tailor an investment strategy that matches your personal circumstances and seeks to address your multiple objectives. They have required skills and experience to determine if strategies designed for the transition to retirement may be appropriate for you in terms of achieving your long-term financial goals. Top 10 Microgaming Casinos in Australia​​ GunsBet – 100% deposit bonus + 100 free spins. Spin Samurai – 125% match bonus. We recommend these microgaming casino sites to play online. Best Microgaming Casinos For Australians ; 1 · Pokie Spins Casino ; 2. Jackpot Jill Casino ; 3. BitStarz Casino ; 4 · Hell Spin Casino ; 5. National Casino. Play Microgaming casino on PC & mobile software platforms · For AUD players, banking is simple and safe. Microgaming pokies can be found at HellSpin, DundeeSlots, Bizzo and Ricky casino. What is the best Microgaming pokies?

Taking the time to plan your ‘transition to retirement’ can be well worth the effort.

Speak to your Newcastle financial advisors at Leenane Templeton Wealth Management today.

Call (02) 4926 2300 or email us today.

Source: First Sentier

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Living the good life, retiring happy, wealthy and wise

Retirement is a little like Clark Kent taking off the Superman suit. It’s peeling off an identity – from an industry, a company, or a personal work history – and entering an entirely new life stage.

There’s freedom and excitement, the time to do all the things we’ve been waiting for, but there’s also some fairly key life changes and adjustments to make, some of which may be totally unexpected.

Although retirement is one of life’s most mentally challenging milestones, retirement advice usually focuses on finance rather than feelings. Planning for both can make a tremendous difference.

The bright side & the down side

So, what are the changes we face when we step into the retirement phase?

Time stretches luxuriously in front of us, something many of us have craved our entire working lives. Time to travel, read the books we’ve always wanted to read, take up a new interest or spend hours doing what we love. Some of these activities require money; many just need a good attitude and a mind that loves a challenge. However they all hinge on what retirement offers: time, and a lot of it.

But retirement can carry a downside. As Dr. Robert Delamontagne writes in The Retiring Mind: How to Make the Psychological Transition to Retirement, “For the first time in my life, I had no answers. I had fallen into a black hole where there were no guideposts for me to follow. What had happened to me? I built a successful company and lived a very active and dynamic life…yet I had no clue what to do next. For the first time in twenty-five years, I did not have a company to manage, nothing that urgently needed to be done, and, most troubling, no one who needed me to make a decision or contribute to a discussion. I did not play golf, nor belong to any clubs, and had little interest in doing either.

I wish that I had though, because brother, was I stuffed.” 1 The challenges of retirement can be numerous – from dealing with a change in identity and filling the hours previously spent working, to being labelled ‘retired’ or feeling unneeded. With no job, industry, company or colleagues to confirm who we are and where we fit, it’s easy to forget our own sense of purpose.

Charting a new course

Whether retirement is a goal or an unexpected curve ball, planning for retirement mentally as well as financially is key. Some people take a hybrid approach and continue working – either part time, in a consultancy role, or in a new industry with reduced pressure (and salary).

Many choose to get involved as a volunteer, evidenced by the 34% of the adult population of Australia who volunteer at least one hour every week with community organisations.2 Others take on a new project, sign up for courses, or help family raise young children.

Charting a new course for retirement means we need to think about our values – and act on them. What we do with retirement will give us satisfaction if it lines up with what we truly value. It’s wonderful to take care of the grandkids, for example, but extremely important to decide upfront how much time you’re happy to give. And buying that beach house is only a good idea if you love relaxing, which some people actually don’t.

Feeling good about retirement is an important goal, but it may not come as naturally as we think. It’s important not to underestimate the psychological impact and that’s where planning can help. Sorting out real values from perceived values will help us transition into retirement – and live the good life we’ve been waiting for.

1 Delamontagne, Dr Robert P. The Retiring Mind: How to Make the Psychological Transition to Retirement, Synergy Books, 2010, pp.1 – 2.
2 Volunteering Australia FAQs. www.volunteeringaustralia.org

The post The Psychology of Retirement appeared first on Newcastle Financial Planners & Financial Advisors.

Most of the information we use in discussing longevity comes from actuarial life span projection tables which are commonly used by life insurance companies in determining costs for particular policies.

There have been some interesting discussions in recent press articles following predictions made by American futurist Ray Kuzweil, a very successful inventor and businessman  and recipient of many awards for technological development, including the first text-to-speech synthesisor (1975),  the first print-to speech reading machine for the blind (1976)  the first music synthesisor capable of recreating multiple musical instruments (1984), among many other inventions relating to artificial intelligence.  Ray, a MIT Computer Science graduate, who has been awarded many honorary doctorates, has written several books and is no slouch when it come to predicting technological change. 

In recent times one of his predictions, as espoused in his book, Fantastic Voyage: Live Long Enough to Live Forever (2004), has been creating much discussion on social media sites.  It is his idea that by 2030 biomedic technology will have advanced to the point where it will be possible to halt the body's ageing process.  He believes that tiny robots the size of red blood cells will patrol our circulatory systems and rejuvenate tired cells.  Then by about 2050 he predicts that we should be able to reverse-engineer a human brain and brain and upload it into a robot. People willing to give up their "wet" bodies, we are 50% – 60% water,  could not only live forever but also think at electronic speeds. 

Whilst to many of us this may seem far-fetched and not achievable, from a  social perspective it would appear that within a few decades longevity may become quite unpredictable if technological improvements become ever more exponential.  There will always be early adopters of technology, and Australians have historically been early adopters, however there would be significant implications for governments as well, especially as our expectations rise along with the costs of the technology.

Similarly, society may need to embrace a definition of retirement that is perhaps based on disability rather than age.

From a superannuation and retirement perspective these changes need to be factored into long-term planning, particularly as there is already clear evidence of significant improvements to health, lifestyles and longevity.  An inter-generational self-managed superannuation fund will be a tool to assist you with longevity and meeting your long-term living needs.

For longevity and retirement advice speak with our award winning Newcastle Financial advisor  Andrew Frith.

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