What do all of our clients have in common? They all want the best outcome for their retirement. Everyone does - they want their money to ‘work for them’ in the best possible way. Unfortunately, like everything in life, the desired outcome is not always achieved.
So what people should do is work out how much they think they’ll need – as a figure. And that is done with a little bit of backward mapping from the point of retirement.
According to some surveys conducted on happiness, people drawing $80,000 a year from their super are living very comfortably. Any more than this doesn’t tend to equate to more happiness. We’re not saying people don’t want more, or enjoy more, we’re just saying their final desired amount doesn’t have to be huge.
When we look at the lowest and the highest possible outcome for our clients’ situations, sometimes the difference is between $1 million and $3 million depending on what steps they decide to take. That is a significant difference, and you want to ensure you know all the possibilities before making big decisions.
One way people try to boost their retirement fund is through buying property and having equity, then expecting to gain funds from capital growth. This doesn’t always work for everyone though. Take one of our clients, for example, who has three investment properties. We describe his situation, like many others’, as ‘treading water’. Their incoming rent is not enough to cover the outgoing costs. And the capital growth needed to make the expenses worthwhile may or may not happen as and when they want. Growth in the property market is not in their control, nor in ours.
Compare this to someone with no debt tied up in property, and the ability to invest in shares, and they might end up with a better outcome. Even with a drop in the market, if people are regularly contributing to their super or other investments, that money is compounding continuously.
Some of our clients decide to sell their property and end up having around $1500 extra a fortnight in the bank. If you look at that over a year, that works out to be $39,000. This is a significant sum to be adding to your investments in the long run.
Basically, you need to look at the full range of possible outcomes in retirement. That means not only planning for what you think you’ll need, but also working out the best case scenario as well as the worst case scenario. There are always going to be risks. It’s just about managing them in the best possible way.
Dallas Davison, Michael Hogue and Ali Hogue.