Don’t let your retirement be how you wished it to be. Rather, how you want it to be.

By Hamish McPhail, LL.B, GDipBus (Personal Financial Planning), CFPCM, Financial Adviser – Investments, Director of MFAS.

Antoine de Saint-Exupéry said “A goal without a plan is just a wish.” Don’t let your retirement be how you wished it to be. Rather, how you want it to be.

As our population ages, many “boomers” are marching towards the time when retirement becomes a near term reality. And for most this is somewhat daunting. The working income that you have enjoyed for many decades will cease. You aspire to enjoying the golden years, while fitness and health allows with travel, adventure, family, and all things good but, how much can you spend and what will this mean to quality of life in your dotage? Common questions and common fears which can be obviated in most instances by having a Plan and by this, I mean a guiding document as opposed to squiggles on an A4 page!

There is no right or wrong time to commence a Retirement Plan, you may be 40 or you may be 65, getting it started is the key.

When a Retirement Plan is in existence you have a thesis which examines the entire spectrum of your leisure years. You should be able to check and measure progress via this document and be able to adjust as life changes.  Further, and importantly, a well-constructed Retirement Plan will enhance longevity of your investment capital through prudent asset allocation. Asset allocation is essentially how much you hold in the various asset classes typically Cash, Bonds and Equities. We would add another category to this being Inflation assets which are necessary to ensure that when inflation rises the future buying power of your capital is maintained. Clearly this is a hot potato issue at present and deserves attention.

Active management of your asset allocation will allow for a more sustainable retirement, without the fear factor that can overwhelm in difficult times. By this, the approach may be to always hold 18 months of living needs in Cash which does not generally suffer big swings in value. As income is needed, it is drawn from this Cash holding and often this is by a regular monthly payment back to your personal bank account. At least once a year the Cash holding should be “topped up” to secure the next 18 months requirements. And this is where good planning and asset allocation come into play as this top up can be made from areas which are doing ok as opposed to sectors that are struggling. As an example, if Equities were down across the board by say 10%, it may be that Bond funds are holding their own so that the top up could come from this source. Every time you are forced to cash up assets during periods of negative returns, you are cementing what otherwise are likely only paper losses. If we have time to wait for the inevitable recovery i.e., in my example above when Equites bounce back by 15%, we will in fact be enhancing portfolio longevity, a matter very important to most retirees.  You want to ensure you have peace of mind that you can continue to draw down your income requirements, no matter what investment markets are doing.

This is a quick discussion on the benefits of Planning. Perhaps deserving as a topic of its own, risk profile and risk tolerance is also of utmost importance. It is critical that this be maintained in a manner that is appropriate to the investor and not a set and forget matter. Just like catering for income needs annually, investment risk should be regularly monitored and adjusted to mitigate the possibility of unwelcome surprises that may impact retirement objectives.