11Oct

Retirement – what happens next? - Peter Vickers Business Group

11 Oct 2016 |

There has been a lot written about how one goes about saving and how one then invests savings.

The topic of tax comes up and then this leads to superannuation and how one uses super to save tax. A lot of this is driven by investment advisors who like to produce financial plans and charge advice fees on devising investment plans in lots of hard to understand trust investments.

However little has been written about the depressing forecast as our savings diminish, as we get dementia, our partner dies and our children can’t cope with our foibles.

The first thing to consider is the date of our death. Very few of us have an exact date in mind. Some look at their family history or observe their state of poor health. Google states that Ethel turned 113 in South Australia. The average life expectancy was 82.1 years in 2012, The figures are updated every 5 years. This means that half the population will live longer than that age. And what about if you are the one that reaches 113 and you only thought that you might reach 95 and planned your draw downs accordingly? What do you live off for the next 18 years?

You thus need to stay working as long as you can as once you retire then no new money will be coming in. 

Once you stop earning a full income then you begin to start drawing down on your savings. Savings diminish in the same way that savings compounded. At first the drop in your savings is fairly small but then it becomes noticeable. One grandpa that I knew really annoyed his grandchildren because all he talked about was the cost of tinned tomatoes at Aldi. Everyone knew his wealth but he only saw his savings going down.

Some 50 years ago one retired at 65 and died at 67. Thus on retirement you cashed in all your assets and put them in the bank. You did not want to get caught in the down part of the investment cycle. If you now retire at 75 and you are ensuring that your money will last till 105 you have 30 years and this will go over 3 investment cycles. This is long term investing. Being at the mercy of inflation and tax over 30 years will kill your capital.

You have thus ensured that you have enough to last to 113. However at about 90,  you start to forget. I have a client whose family did not get an enduring power of attorney and when they had to deal with her affairs they had to hand over all responsibility to the public guardian, which made life exceptionally difficult besides coping with Mum.

At some time you will need to hand over your financial affairs to someone else so please do not upset all your children.

One client with eight children asked me what their retirement plan was as they had no money to save………I said do not upset all your children as you will need to move in with one of them.

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