How much is enough for retirement?
Alan Wellburn, Head of Wealth Management at Wealth and Investment SA, explores what it takes to ensure a comfortable and secure retirement, particularly in monetary terms.
In these uncertain times, having a flexible, future-focused retirement plan in place is more important than ever, particularly if you want to maintain your current lifestyle and ensure a lasting legacy. But when it comes to retirement savings, how much is enough?
Inflation, the cost of long-term health care, increasing longevity and external forces are just some of the factors that can negatively impact your income and your future financial security. It is therefore vital to remain cognisant of opportunities that can be utilised to mitigate risk, while also gaining exposure to investments that provide for wealth preservation and growth.
Planning is the key to success
One of the many roles a wealth manager plays in the holistic financial planning process is to determine whether your retirement capital amount is sufficient. This is referred to as your core wealth, which will typically afford you a comfortable retirement, bearing in mind that you should expect this amount of money to reduce over time as you draw an income.
The amount of money over and above what is required for your retirement is referred to as excess wealth, and the decisions on what to do with this are completely different to that of your core wealth. Your excess wealth is what will enable you to leave a legacy to your family, or perhaps pursue your philanthropic interests, or supplement your core wealth if required.
Establish how much you will need to retire
Your personal circumstances, income requirements, investment objectives and appetite for risk all play a part in how well prepared you are for retirement. That is why it is important to partner with an experienced and accredited wealth manager, preferably a Certified Financial Planner®. They will work with you to establish the present and future value of your current investments to determine whether you will reach your core wealth target.
This of course requires some assumptions, so it’s best to err on the side of caution and to try not overestimate the possible returns you can achieve on your investments. This planning process will result in a clearer understanding of your current position and the answer it presents will be binary; either you are well on track to achieving your retirement goals or you are not.
What if you are not on track?
Should you find that you are not on track to reach your core wealth target, all is not lost and there are some levers to pull. You could try reducing your current outgoings (which would require a budget to be drawn up) or you could moderate your lifestyle requirements in retirement.
Another consideration is the age at which you stop working. It’s incredible how the results change if you push your retirement age out by a few years. Your wealth manager should be able to take you through all these scenarios. Once you’ve settled on a plan and have a clear line of sight, it will often bring a sense of comfort.
Other factors to consider
Where and how your retirement capital is invested is another extremely important factor to consider, both pre- and post-retirement. This is where a wealth manager needs to provide their best and most objective advice.
Your investment solution should ensure you are growing your money in real terms (more than inflation). This is not achieved by keeping your investments in cash and may require a more diversified approach, including investing into riskier asset classes with a potentially higher return, such as equities or listed property.
Never underestimate the importance of time
The biggest challenge for investors in today’s volatile markets is to remain committed to their plans over the long term, without letting fear or greed take over. One of the key ingredients to successful investing remains time in the market and not timing the market.
With risk comes volatility, which can lead to high emotion, which is one of the biggest destroyers of wealth as it can result in selling at the wrong time. This is where it’s important to seek expert advice to assist with your retirement planning and investments.
Wealth and Investment’s team of specialist Wealth Managers are experts in modelling cash flows that demonstrate future income needs. We work with you to allocate the appropriate quantum of funds that take income certainty, capital stability and long-term growth into account. This in turn, can help to ensure that you will be able to enjoy a comfortable and worry-free retirement.
If you would like to discuss your retirement needs and objectives, please contact your Relationship Manager, who will connect you with a wealth specialist.