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Minimise risk in retirement planning

EARLY planning for retirement is the route to old age recommended by the financial planning and superannuation fraternity.

To make the journey easier, people typically are advised to shift their investment portfolio from a growth strategy to a more conservative, risk-averse strategy.

Association of Superannuation Funds of Australia principal researcher Ross Clare said that, in many cases, early investigation of a retiree’s expectations could make it possible to put successful strategies in place.

“When you are looking at making decisions about things which are the biggest in your life, you need to consider carefully,” he said.

“They may need to consider putting more money into superannuation during the last few years. Salary sacrificing money may be needed if they have not got enough put aside.”

Mr Clare said it also was important to consider how much of the assets should be restructured to maintain a steady income.

Parcorp Financial Planning CEO Ian Davies agrees. He tells his clients it is important to make an adjustment to the portfolio to provide for a steady income. But it also was important to provide for healthy growth, particularly in a low interest rate environment.

“To convert all the assets from growth to income will simply lead to an eroding of the person’s purchasing power over time,” Mr Davies said.

But Mr Davies concedes that, for some, the thought of locking money into growth assets such as property was a luxury that they cannot afford.

While many advisers suggest the transition in assets should start a year or more before retirement, Mr Davies said it was best to wait until the final gong rang, and then make ongoing adjustments continually through retirement.

“Some planners would suggest that the changes are made earlier because they want to protect their clients against the risk of a market downturn. More years than not, however, the market actually will increase,” Mr Davies said.

“My philosophy is that you run your client through to retirement. You might be doing your client a disservice otherwise, because they are missing out on a year or two of growth.”

Whatever the strategy, HSBC Bank Australia Ltd WA senior financial planner Gavin Smith said the most important thing was to decide what a realistic retirement income should be.

“Realistically you can go somewhere between 50 per cent and 66 per cent of what you are earning during your working life,” Mr Smith said.

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