Did you know that unlike 20 years ago, today over-55s account for more that 19% of the workforce.
This number is expected to grow to about 40% by 2050 according to the Centre of Excellence in Population Ageing Research (CEPAR).
So what are the reasons that drive people to work longer?
Number 1. Longer life expectancy, which means money needs to support you for a much longer period of time
Number 2. Mounting financial pressures - well, life is not getting any cheaper
Number 3. Expectation of, well, "catching up with what we wanted to do while working,
but we never really had time or resources or both to do it at the younger age.
And number 4. For many families, the actual time to start saving and building own estate, starts after kids left home,
after you've paid off your mortgage and then you can start thinking and saving for yourself
Although the Covid pandemic and market volatility did not help in assisting 50 to 65 years olds to retire safely and with peace of mind ,
we can go back to Global Financial Crisis (GFC) where we see very similar pattern of postponing retirement.
As you can see, this trend is only strengthening.
Just recently I prepared a video: "What income do I need in retirement"
where we discussed annual income required for a "modest" and "comfortable" retirement.
Please watch this video if you haven't seen it yet, it is quite a fascinating information,
but some good ideas for you how to set up your retirement income sources to reach the modest lifestyle as a secure, lifetime income stream.
Speaking with retirees daily, I know for a fact that the most important factor
in creating a retirement income is a need for a predictable and secure monthly income to meet expenses of daily needs.
But as I said before let's not forget that you are expected to live so much longer,
there are other expenses that we have to meet during your retirement, or things that we want to do, enjoy and experience,
your expenses will only keep growing not reducing, your money needs to keep up with inflation, otherwise you really go backwards.
So investing in retirement should be just as much about creating a predictable, secure income,
as it is about capital growth of your investable assets as well.
And that involves a completely different investment strategy, meeting different investment objectives
therefore employing different investment decision and different investment choices.
And that is a topic of our today's discussion: "How to invest for income and growth in retirement"
My name is Katherine Isbrandt from About Retirement, I am Certified Financial Planner
and you are watching my joyful creation - About Retirement TV,
the place to find all the information, financial information you need to be well prepared for retirement or to improve your retirement income,
your assets, investments, Age Pension and everything in between if you have already retired.
Tony Robins said: "It is in your moments of decision that your destiny is shaped",
so let's make some solid decisions today about how to improve value of your assets in retirement so your money can last as long as you will.
Whether you invest your savings through superannuation or outside of it, is actually completely irrelevant for our today's discussion,
as we will mostly be discussing how to go about creating an investment portfolio that will support your retirement lifestyle for a very long time.
I am sure this topic will require more than one video, so let's jump into it.
In the previously mentioned video "What income do I need in retirement"
I explained how to set up your income sources to create your "modest lifestyle"
no matter what happens in your life or no matter what the market is doing.
I do realise however, that this particular video and that particular investment strategy applies to you if you are eligible for either full or part Age Pension
or if you are just above the Centrelink tests limits and you would like to have access to part Age Pension.
If you still unsure how to do it, just contact me directly for a personal advice
how to improve your Centrelink Age Pension payments and how to improve your overall income.
But what if you want more than that "modest lifestyle"?
What if you would like to have a “comfortable lifestyle”?
to have "money backup" for your future capital expenses, such as a holiday, a new car, home maintenance, health expenses or Aged Care fees?
Have a look at my graph, unfortunately, this is a scenario that I very often see,
Have a look at orange line that represents current scenario that I very often see in client situation,
the money is invested far too conservatively and very often within the period of 16 years due to living expenses exceeding income
and a very low investment returns, there is no money left, with actual money dropping below zero.
The red line, it represent my first strategy when I applied this according to the strategy that I explained in that particular video
in order to reach our modest lifestyle as a secure income that will virtually guarantee your income for life
In that particular situation I was able to improve clients income by close to $20,000 every year subject to CPI increases
But it has not assisted in creating a better outcome for assets value, that still in about 16 years will reduced right down to $0.
So, in this situation you would end up with no assets backing you up, but at least the income will continue for the rest of your life
with Age pension increasing year after year and you meeting your "modest lifestyle" every year as well
and now let's have a look at the blue line, after applying the strategy for the "modest income"
then we concentrate our efforts on creating an additional investment portfolio.
Obviously, as I always say, keep a small balance in your rainy day bank account for emergencies
and then the remainder of your assets needs to be invested to benefit from growth assets.
As you can see, the outcome is the investment value of $200,000 after 16 years of investing, while not sacrificing any income at all.
As a matter of fact, this client not only received additional income of $20,000 from our Option 2 which was a red line,
but this diversified portfolio is still able to pay additional annual income (if needed) of round about $6,000 per annum.
while after 16 years still providing a value of $200,000.
Which option would you choose if that was your money and your future?
What would be your plan to improve your income? And please keep in mind we are talking about secure and reliable income for life.
What would be your plan to keep your savings alive? Please let me know in the comments below the video.
Okay so what assets should be included in such investment portfolio?
As I said, this is a pretty complex area, so let's start with the basics.
A well-diversified investment portfolio will include:
1. Defensive Assets and 2. Growth Assets
The mixture of those assets will determine how conservative, or how growth oriented your diversified portfolio is.
The greater your exposure to defensive asset, the more conservative your portfolio becomes,
yes we can lower the market risk, but also unfortunately we will receive much lower investment returns.
Especially in the very low interest rate environment we've had for for such a long period of time already.
And there is no expectation for interest rate to go up in a hurry anytime soon.
This is not helping retirees, but is a huge benefit for young people, especially first-home buyers.
So, if you know that you cannot derive any income from your investment and there is hardly any capital growth,
as a retiree, you really have no choice, but you have to have some solid exposure to growth assets.
Unfortunately, I can see day after day many people who are petrified to invest properly their retirement savings, thinking that they will lose it all.
Well think about it this way, this is really your choice, you either continue conservative investment
and just like I've shown you in a graph you are virtually guaranteed to run out of money
or you take some calculated risk with assistance of professional advisor
you can give yourself and your money a chance to keep its value, keep growing
keep providing you with consistent income to have a better quality of life and some good solid capital left behind.
The only other option you have is to stop living, stop eating, stop paying your bills
Well, this is just as realistic as believing that, "I can still change him.... or her"
What are examples of Defensive assets? 1. CASH - cash in your bank account, cash management accounts
or even investing into international cash, which I'm sure your superannuation might be doing or some of your managed funds
2. FIXED INTEREST - that could be here in Australia as well as any other country
Examples of fixed interests are term deposits, bonds, mortgages, debentures.
They all provide some degree of income, unfortunately, in current environment very very low level of income
but they do assist with reduction of volatility of overall investment portfolio returns.
What are examples of Growth Assets? 1. - AUSTRALIAN SHARES - personally I love shares
I think this is the sexiest part of money investing, but it does require knowledge, research and consistency.
But most certainly you can make some great profits.
2. INTERNATIONAL SHARES Australia is not just a country, but we are a separate continent
but as big as our land is, our economy not really. It consists only 2% of the world economy,
So if you restrict your investing to Australia alone, you are missing out on some fantastic returns from other courtries
3. PROPERTY - you can invest into property directly and a lot of people do that,
unfortunately it is very hard to diversify with direct properties - how many properties can you buy really?
But there are many listed and unlisted investments that you could participate in and benefit from great income
this is what the property sector does - provides a pretty reliable income, with some capital growth as well
Again it could be in Australia, as well as international.
Please watch my video "Property Shares or Super" where I explain the different growth assets in more details.
There is really no limit to diversification that you can introduce into your portfolio not only in underlying investments,
but the choice of fund managers or shares or Exchange Traded Funds so called (ETFs) or Listed Investment Companies (LICs),
your choices are endless, and this is what's exciting, but could be quite overwhelming as well.
It is very easy to get caught up in the latest "best thing" and keep chasing the best last year performance
and both of which are recipes for disaster, I have seen so many times.
So if you would like to improve your investment portfolio, have a solid future performance,
create great asset allocation with good allocation to growth assets while paying attention to markets behaviour
and keeping pace with inflation, you really need a solid financial advice.
As I have shown you in the graph, the overall level of risk of the whole portfolio can be quite low,
if you know how to use available products and types of investments.
And this is exactly how I create a secure income for life, introduce inflation protected investments
to remove longevity risk, so your income and your assets will support you for life
and hopefully will actually outlive you so you can pass your estate to your chosen beneficiaries.
I have just scratched the surface with this video which is our new topic however very important and requested by many.
So we will continue our investing discussions in my future videos.
But for now I would like to ask you, if you still here and you're still listening to me for those close to 20 minutes
I hope you enjoy this video, so please give it a LIKE and SUBSCRIBE not to miss my next video
Have a look at those previously mentioned videos
"What income do I need in retirement?"
Some great ideas how to organize your must-have level of income
the second recommended video is "Property Shares or Super"
interesting comparison of those so very different investment types
I will see you in my next video bye!