It is almost Christmas, so it is time for the present wishes;

• Lower inflation
• Lower interest rates
• Share market bounce back
• Iceberg lettuce
• Petrol vouchers
• Ability to retire stress free in the future.

We would all like to live in a perfect world, unfortunately, this just does not happen. For those looking at retirement, now may be more concerning than ever. In a world of rising costs, volatility and uncertainty, many people fear if they will have enough money to retire and cease work.

There are plenty of risks we face with retirement which can make us all apprehensive. To restate our adviser Cheng Qian’s article from last October, here are some of the key risks.

Sequencing risk

This is the risk of the market facing a severe and unexpected downturn just before you retire. As a pre-retiree, you may not have the time horizon to wait out a recovery. An example would be a retirement nest egg of $1,000,000 falling to $750,000 just as you are about to retire. At a drawdown of 5 percent, this is a reduction of annual income from $50,000 p.a. to $37,500 p.a. and a big hit to anyone’s retirement.

Lower than expected returns

Retirement portfolios are not designed to shoot the lights out but to generate a sustainable level of return with a focus on capital preservation. However, if returns do not stack up for whatever reason, it will lead to a rapid deterioration of your capital and your savings may not last as long as you designed them to.

Longevity risk

This is the risk of retirees living beyond their savings. With improved health care and higher standards of living, life expectancy is higher than ever. Hence, with all else equal, you are more likely to outlive your retirement savings.

The obvious question is “How much will I need?”

There is no single answer, and every one of us have different expectations of what retirement looks like and as a result, we need to look at what kind of research exists.

A good guide lies with the Association of Superannuation Funds of Australia (ASFA) which publishes a ‘retirement standard’.

ASFA have outlined two different living standards (comfortable and modest). These values are updated quarterly to reflect Consumer Price Index (CPI) increases (which have risen more dramatically in 2022). For both options, they assume the family home is owned outright and that the individual is ‘reasonably healthy’.

• A modest lifestyle is exactly that – a lifestyle higher than solely having the age pension as income but is a basic income for expenditure.
• A comfortable lifestyle includes a few ‘extras’ around holidays, technology, insurances, and general expenses.

The next question is how much?

Again, the standard shows this in two ways – expenses and savings at retirement. Note the savings amount allows for a part or full age pension to also be received.

The standard is therefore suggesting that a couple looking at retirement is really needing to have at an absolute minimum $70,000 (for a $43,250 per annum expenditure target). Everything over this amount will allow a higher level of lifestyle. The question will then shift towards your personal lifestyle requirements to determine your needs.

If there is one thing for certain, it is that uncertainty will always exist, and markets will go up and down. The thought of retirement will always be somewhat of a scary proposition, due to the loss of regular income and security employment provides. There really is no set guarantee and no defined perfect time for retiring. The ability for humans to be flexible in their approach, wants and choices are what enables us to take up the challenge and to make decisions to move our lives into the next phase. A volatile market does not have to be a roadblock and could be the opportunity for change in our lives being sought. Having some basis of comparison for what might be required to fund retirement to what you have now, can be an excellent way to start planning.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.