The biggest fear most retirees face is when their money runs out. How do they continue to support themselves? How will they generate the level of retirement income they need for another 10 years plus? With longevity a positive outcome as a result of modern medicine and technology, combined with improved health care systems, retirees are left with the dilemma of ensuring their ‘nest-egg’ doesn’t run out too early.
So, let’s look at the steps to best safeguard your retirement money from depletion.
- Manage Investment Risks and Returns
How your retirement money is invested and what you invest in can make a sizeable difference in growing your capital as safely as you feel comfortable with, and at the same time, generate an investment income you can live on. The aim is to not to withdraw your capital too much but to generate as much investment income from it so you try to preserve and grow your capital as much as possible.
Most retirees tend to take a conservative approach when investing their retirement ‘nest-egg’ which is understandable, and sounds like a wise strategy but it should not be the norm for all retirees.
Depending on how old you are, how much capital you have, how much you require as income and how much room you have to ‘play’, your retirement plan should be reviewed regularly to ensure it is relevant and sustainable. And be prepared to adjust your mix of investments to ensure sufficient levels of capital growth can be achieved to sustain the number of years of income you need to generate.
During periods of low interest rates, your retirement capital cannot grow as much, and most likely will generate low investment returns. Although it is safe to be invested in cash and fixed interest investments, this approach if continued for long periods does not help to make your money last. If you’re forced to draw down large chunks of your capital, it will surely erode away far quicker than giving your capital opportunities to grow with you.
2. Review your retirement plan with professional financial advice
As interest rates move up and down, you should keep a careful eye on your retirement plan. A retirement plan should never be a ‘set and forget’ document. It is your lifeline and your livelihood so it needs to be treated with the utmost care and respect.
It can get tricky and challenging trying to monitor the economy, changes in pension and tax rules and movements in markets, which can impact on your retirement investment portfolio, on your own. This is where a half-yearly to an annual meeting should be had with your planner to review and monitor your retirement plan. It’s also a great time to discuss any personal changes or movements happening in your life which can alter the course of your retirement roadmap.
Whether you want to take up part-time employment or support your family with financial gifting, all personal changes should be discussed with a planner. With light of new information, you and your planner may decide to reduce the drawdown of pension income as you’ll generate extra employment income. Reversely, if you’re gifting this may change how a potion of your retirement capital be invested going forward.
Whatever your situation may be, it is vital to be active with your retirement plan, and have it monitored and reviewed regularly with your financial planner. It’s like a balancing act, and you need to get it right consistently so you don’t get tipped over the scale.
3. Become financially savvy and up-to-date
Be on the prowl and stay updated with what’s happening with the world and the economy around you. Stay on top of what’s happening with the financial world. Get to know the investments that make up your retirement investment portfolio. How spread are your investments? Are you too heavily concentrated on property and not enough diversification of other investment assets?
You have the time to take a vested interest on how to make your money last as long as possible so you can enjoy your retirement with peace of mind and financial security.
You have your planner with you but it doesn’t hurt to have an internal budget set up and monitor your spending and expenses. Where you spend your income on, and how regular those expenses are can determine where you are overspending and potentially reduce extra drawdowns of income.
Become disciplined with saving. Develop a saving habit and stick to it. If you need extra money to spend on big ticket items like upgrading a car or renovating, ensure you have budgeted for it.
Know how much retirement income you generate and what your monthly expenses are so you can be a savvy manager of your own finances.
There you have it. Our top 3 tips to make your money last in retirement. They are not new or the latest trendy investment tips but proven money management strategies that work, and ones that make financial sense.
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This web page may contain general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.