It’s no secret that you should save throughout your working life to support your dream retirement lifestyle, but that doesn’t mean the day you stop working your money is limited. Many retirees opt to keep their hard-earned money in a diverse investment portfolio that accrues capital growth over time. But with so many options out there, it can be hard to know what or where to invest your money in.
Understanding Your Retirement Goals
Investing isn’t as simple as putting money in and getting lots in return; we’d all like to see our investments skyrocket within months, but the reality of investing often means investing is a longer game. The promise of high investment returns in a very short time frame is a telltale sign of a higher-risk investment and should be done so with extensive research.
During your working life, we recommend considering your ideal lifestyle to gauge the sort of return you’ll need to see to create an estimate for your ideal retirement budget. Consider your desired lifestyle, living costs, and income requirements in retirement. To arrive at your current retirement budget vs the desired budget you’ll need to assess your current savings, super fund and income sources such as the Age pension should you be eligible.
Assessing Your Retirement Expenses
To devise your investment strategy, you’ll need to estimate your yearly expenditure, including essential expenses and discretionary spending. Don’t forget to account for how these might change over time with inflation and the potential rise of medical expenses in later life. You’ll need to factor in any debt repayments or any financial obligations you’ll have during retirement.
Once you have an estimate in place, you’ll need to evaluate your investment options and your level of risk tolerance to determine the best strategy for your retirement savings. Greater returns come with greater risk, it is recommended to only invest in high-risk portfolios for an extended period to mitigate years where a loss is made.
Investing for Income in Retirement
There’s no one-size-fits-all when it comes to investing; the best investments for you will depend on your financial situation. Receiving income from your investments is a gradual process, if you are looking to enjoy the returns within 1-5 years, a low-risk portfolio will suit you best, those with more time to reap rewards may explore mid-high risk to increase the interest earned.
Considering a range of investment options, many asset classes generate income, each with its pros and cons, such as shares, bonds, and property. Many financial advisors recommend diversifying your portfolio to mitigate against market downturns and balance risk.
Best Retirement Investments
Consider lower-risk investments, such as bank accounts and term deposits, for stable returns. Lifetime annuities are a popular choice for retirees in Australia. These are policies sold by a superfund or life insurance company that ensure you receive a reliable income, that, unlike an account-based pension, is not impacted by capital stability.
To purchase a lifetime annuity you’ll need to confirm the duration of payments; a fixed number of years, your life expectancy, or the rest of your life ensuring you’ll receive regular income for your chosen term.
Managing Retirement Income Risks
We’ve touched on investment risk already, but there are four key areas of risk you need to be aware of when creating your investment strategy.
The Big Four Retirement Income Risks
- Market risk: exposure to investments such as shares and property comes with the risk of market volatility
- Sequencing risk: poor returns on investments when your savings are at their peak may have a bigger impact
- Longevity risk: you don’t know how long you’ll live
- Inflation risk: inflation may chip away at the value of your savings when kept in a bank account
Mitigating Retirement Income Risks
In truth, there’s no way to guarantee your returns, it is however essential to undertake regular portfolio reviews and make adjustments where necessary.
Creating a Comprehensive Retirement Plan
Consider the importance of a comprehensive retirement plan in achieving your retirement goals, see if other investments can boost your monthly interest payments, and if are there investment properties in your area that you could let.
Seek Professional Advice
We have written this article as a thought starter for you to begin or consider the potential benefits of investing, we must say that we are not in a position to provide personal advice on specific investment markets. If you require assistance with your portfolio, seek advice from a registered financial advisor for personalised professional advice in creating a resilient retirement portfolio.