3 tips to help your money last through retirement

Updated : Sep 10, 2019 in Articles

3 tips to help your money last through retirement


Your investment needs change
throughout your life. While you’re working
and building your savings, you tend to focus on growth. As you approach retirement,
the next challenge is to convert your savings into
an income to support your lifestyle. At this point, people often focus
too much on income, and forget
about growth and diversification. Assets which only provide income
and no capital growth, like term deposits, tend to be more
stable, but returns are also low. If you need your money
to last a long time, you need to consider the impact
that inflation will have on the cost of living. Dividends are generally
quite stable, even though share prices are not. If you have a large enough
pool of savings, you might be able to live off
the income of a share portfolio and leave the capital alone. But, chances are,
the income won’t be enough, and you will probably need to
sell down your shares over time. Focusing on shares which generate
high levels of income may seem like
a defensive approach, but it can actually be quite risky
if the strategy leads to a portfolio which is concentrated
in a small number of sectors. A recent example is the performance
of the Australian banking sector in May. A combination of the bank levy
announced in the Federal Budget, and ongoing nervousness about
the potential for credit losses in the housing market saw bank
shares sell off 10.2% for the month. A better way of generating income
in retirement is to hold
a well-diversified portfolio across a number of strategies
and asset classes. By focusing on diversification
rather than income, you can maintain enough
exposure to growth assets to outrun inflation, but your portfolio
won’t be as volatile as if it was only
invested in shares. This reduces the risk
that you end up in a position where you’re forced to sell assets
cheaply to fund your lifestyle. If you’re wondering how to go about
generating an income from your investments, you should speak to
your financial planner, who can help you construct a sustainable
retirement income strategy.

Leave a Reply

Your email address will not be published. Required fields are marked *