There is no one solution fits all when making the transition to life after full time work. More free time often means time to travel, catch up with friends or more time with grandchildren. With advances in medical science we are living longer. Living longer means a well thought out financial strategy which will minimise the risk of outliving our money. Whilst conservative sounds right, being too conservative and holding too much in cash deposits may be risky given the continuing interest rate declines verse cost of living increases.
The “SMILE” chart highlights the typical post work life phase. Once the “holiday” starts we typically get active, travel and improve our home. After lots of travel, visits to medical professionals slowly increases and the outlays become more health related. With a good understanding of the desired lifestyle of an individual or couple, a personal investment strategy can be specifically tailored to align with these 30-year plans to achieve security.
Some like to think of this in terms of setting up “buckets” of assets for different time periods. Each ‘bucket’ is allocated to a combination of assets based on when the money will be required to make sure the assets continue to provide a growing income stream given the cost of living only goes up over time.
Thought about in a different way as illustrated below:
- Defensive assets being cash & fixed interest can be used to fund say 5 years living expenses in bucket 1. This avoids the likelihood of having to sell growth assets in a down market (wrong time). We note the longest market recovery after a market decline was from 2009 following the GFC with dividends being reinvested.
- The long-term capital beyond cash needs for 5+ years is retained in growth assets to grow the capital and generate an increasing income which cash does not provide.
- Periodically based on individual preferences the buckets can be re-balanced where surplus cash is invested into growth assets or dividends and other times capital growth is harvested and used to increase cash buffers.
If there is anything you would like to discuss about your specific situation, we welcome your call.