A Six-Point Retirement Plan

• Annual cash flows for recurring expenses, both necessary and discretionary
• Family needs (specific financial help to parents, children, or grandchildren)
• Capital spending to maintain or upgrade lifestyle assets (such as homes, cars, or boats)
• Aged care funding
• Estate planning and bequests
• Longevity funding (so your money doesn’t run out before you do)
• Philanthropy

2. Build a financial model to assess the amount of money you need to meet future goals, and refine your goals and timelines as required

According to the 2020 Retirement Income Review Report, people often have the financial capacity to retire earlier, spend more money themselves (or help others), and enjoy life more fully than they actually do.

Why? Because they lack the means to accurately understand their financial capacity, therefore taking an overly cautious approach to living throughout retirement. Professional financial modelling as part of a broader retirement plan can reveal whether goals are likely to be met or not, therefore allowing people to proceed with confidence or adjust as necessary. Based on personal goals, financial modelling can answer the question ‘Do I have enough money to retire?’. See our whitepaper, Predicting the Future, on our website (www.mgdwealth.com.au) for an in-depth review of the benefits of personal financial modelling. Below, we’ve shared a financial modelling output example.

3. Implement strategies and utilise optimal investment structures (such as superannuation funds, family trusts, and/ or companies) to minimise tax and achieve asset protection

For people with high incomes and/ or high net worth, tax planning and utilising optimal investment structures are essential. All structures in Australia have pros and cons, but they tend to be used because they can reduce tax and afford asset protection. What may be the best mix of financial strategy and structure is often subject to personal factors age, family situation, and level of wealth. Getting tax planning and capital allocation right can make a huge difference to retirement success. The importance of making the right financial decisions based on your circumstances is explored in our whitepaper, Event-Based Advice, which you can find on our website.

4. Employ a goals-based investment framework, matching goals and timeframes with investments

To ensure your goals aren’t dependent on how good a year your portfolio has had, an effective strategy is to construct an investment portfolio that matches your planned expenditures with appropriate investments. Set aside some of your portfolio in short-term investments to meet your short-term needs, medium-term investments to meet medium-term needs, and so on. Permanent losses occur when you sell long-term assets at depressed prices.

Perhaps the most important pre-retirement strategy to put in place a few years prior to retirement is to start building (through superannuation contributions and/or surplus cash flow) a shorter-term pool of liquid capital. This pool can be used to initially fund retirement income, allowing the larger balance of your capital to stay invested long-term, and you won’t be a forced seller of part of your long-term portfolio if investment markets fall.

5. Use averaging — hold cash when appropriate and average into long-term investments over time, based on the value

If markets are highly valued (or are falling), use an averaging approach to invest capital in the long-term part of your portfolio. Investing portions of your capital over time significantly reduces timing risk and is particularly relevant for those converting a defined benefit account to an accumulation account or taking large lumps of capital and topping up superannuation before establishing a superannuation pension. Averaging can always be accelerated to take advantage of market declines and lower asset prices.

6. Avoid behavioural mistakes

A goals-based approach provides a methodology to minimise irrational decision-making. On a calmer investment journey, short-term goals are met with liquid, short-term investments, a stable pool is ready to meet medium-term objectives and replace the liquid pool when needed, and while growth assets may fall in value, they have time to recover and play a pivotal part in generating higher long-term returns.

If you’d like to have a chat about your situation, please contact us on (07) 3391 5055 or via email at [email protected]. Initial discussions are complimentary by referencing ‘Australian Aviation’ in your enquiry.

Any advice included in this communication is general and has been prepared without considering your objectives, financial situation or needs. As such, you should consider its appropriateness having regard to these factors before acting on it. Any tax information refers to current laws, is not based on your unique circumstances, and should not be relied on as tax advice. Before you make any decision about whether to acquire a certain financial product, you should obtain and read the relevant product disclosure statement.