Casting out for a stress-free retirement

Stuart Jackson, a proprietor ofRetireInvestin Dandenong, Victoria, says clients of his business and most others out in the market really have no trouble with a downturn in the market when the time comes to retire.

“If they follow the right sort of strategies, then it’s not an issue,” Jackson says.

He says the major reason it isn’t a problem is because, though clients are taking their superannuation and crystallising losses, they are then using that money to buy into the same down market, and are getting good value.

At RetireInvest, Jackson says financial planners make use of the ‘three pillars’, where clients’ portfolios are made up of a cash reserve, a regular reliable income, and capital growth investments.

A decent size cash reserve is aimed at covering any short to medium-term contingencies, a regular reliable income (with minimised tax and maximised Centrelink entitlements) covers day-to-day living expenses, and capital growth investments are meant to drive asset growth over time.

“We believe that if you have these types of strategies within a portfolio, market timing should not be an issue,” Jackson says.

However, he does say that if someone is putting a large amount into an annuity or needs to pay off a large debt, then the timing of exiting the market would be more important.

Clearview Retirement Solutions chief financial adviser Eric Hiam agrees the decision to retire should not solely be based on timing of the markets.

“Retirement is a long time, and if you look at any investment over the long-term there are going to be ups and downs along the way. In the short-term it does make a bit of a difference, but not in the long-term,” he says.

Hiam says that in the short-term, retirees may have to eat into their capital a little, but if they invest in some growth assets, then better than average returns will help in the long-term and the difference will be negligible.

“You gain on the swings what you lose on the merry-go-round,” he says.

Hiam says that sometimes people look too much at the percentages and not at other lifestyle issues, like what is really important to them.

He gives the example of a holiday, which although carrying no financial return, has a return in terms of satisfaction, memories and experiences.

The problem with putting off retirement because of poor markets, according to Hiam, is that people may start putting it off up to five years and never know when the time is right.

He says that he has known times when couples have put retirement off for a year or two, and one of the pair has died before they made it, leaving the other devastated and having to spend their retirement alone.

As an adviser, he says the best way to deal with clients facing the decision is to “hold a mirror up to them”.

This strategy, says Hiam, establishes if a little extra income is of vital importance to the client, in which case they might consider delaying retirement, or whether lifestyle is more important.

Association of Superannuation Funds of Australiachief executive Philippa Smith says it is obviously a lot harder for individuals if the down market is happening on the lip of retirement.

“Most people understand that superannuation as a savings vehicle has and will perform well over the long-term, but it’s the immediate fluctuations that can be very nerve rattling,” she says.

Smith says in some ways, if they do have the option of deferring retirement in a down market, it might be one strategy of dealing with the situation.

However, she says that another strategy, though “the rules are clumsy around it at the moment”, is to look for part time or casual work to provide the extra money for their needs.

“I think that increasingly people will be wanting to phase in retirement rather than have a sudden break, and so they will be looking for part time or casual work,” she says.

Smith says that as well as down markets, there can be things such as unexpected illnesses or unemployment that may affect retirement plans at the last minute.

Jackson says that in the end, the advent of poor markets reinforces the need for an ongoing relationship with clients.

“It provides an opportunity to relay and demonstrate your worth and cement your relationship with a client,” he says.

Jackson says ongoing education of clients is important, as you are able to communicate basic messages like investing for the long-term and the short-term fluctuation potential of the market.

Smith agrees that this education is important, and it is better done when younger, as she says the older a person becomes, the more difficult it is to change their retirement options.

“If you get there but don’t have adequate savings, your topping up options are slim,” she says. “The best options of doing something about it really come about the earlier you start planning.”

She says that lack of planning sometimes forces some people to extend their working life longer than they would have liked.

“Many people nominate age 55 as a good time to retire, and they become very attached to that age,” Smith says.

“As that gets closer, however, the reality sometimes is that what they have saved is not going to achieve the retirement income they need, meaning they have to postpone it somewhat.

“The reality is these days people need to plan for more years in retirement than they have in the workforce.”

Smith says it’s better to aim for an earlier retirement target rather than a later one, so that if an individual still wants to work after that, then they have the option to do so.