Lighthouse Financial Advisers Townsville | Helping people over 50 retire with confidence
  • Home
  • What We Do
  • Who We Are
  • Podcast
  • Blog
  • FAQ
  • Contact Us

No such thing as no risk

28/8/2020

 
Older couple drinking coffee in house
​If you’re in your 50’s, you have probably thought that the closer you are to retirement the more you should be invested in low risk. This usually translates to you believing that you should be avoiding the volatility of growth assets such as companies.
The issue with this thought is that it fails to include the very real possibility that you may live for a long time and will need a larger balance to survive.

Risk doesn’t just disappear when you decide to put your money in non-volatile assets, it gets swapped out for the risk of you possibly running out of money in your retirement or downgrading your lifestyle.

Remember, when you retire you are no longer earning an income and the only way that you’ll be gaining any money is through the return generated by your retirement savings.

Let’s use a scenario.

If a couple had roughly $500,000 in retirement savings and maximised their concessional contributions each year for ten years while being invested in low risk cash investments (such as term deposits), they would retire with circa $1,000,000 in retirement savings. This amount would generate a return of around 1% ($10,000) and assuming you want to draw an income of $80,000 p.a., you’ll be on the back foot immediately by drawing more money than what your investment can generate.

Once you see this, you’re focus will shift from worrying about volatility to a worry about running out of money. You’ve essentially shifted the risk.

The alternative scenario.

If that same couple had instead maximised their concessional contributions each year for ten years while being invested in companies, generating a conservative return of 8%, they would get to circa $1,500,000 in retirement savings. By this point their retirement savings would generate a return of around $120,000 p.a., which is more than the $80,000 they wish to draw as income.

Still, people may find the alternative scenario to be risky.

A way to help handle this risk is to build contingencies into your plan for when a large market drop happens. We like our clients to have about 1-2 years’ worth of living expenses put aside for WHEN this occurs.


When you have the discussion about the risks involved in your investments, just be mindful about the trade-offs involved, such as your retirement lifestyle. It should never be a one-dimension discussion about volatility.

If you wish to discuss your options feel free to get in contact with our office at 07 4772 0938.


Comments are closed.

    Author

    Dallas Davison, Michael Hogue and Ali Hogue.

    Archives

    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    April 2018
    March 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    June 2016
    May 2016
    April 2016
    January 2016
    November 2015
    July 2015
    June 2015

    Categories

    All
    Alice Springs
    Book Reviews
    Budget
    Charters Towers
    Cloncurry
    Contract
    Contributions
    Debt Reduction
    Economy
    Events
    Examples
    FAQ
    Fees
    Financial Adviser
    Financial Planning
    Fund Management
    Goal Setting
    History
    Hughenden
    Inflation
    Interesting
    Interest Rates
    Investment
    Julia Creek
    Lifestyle
    Media
    Money
    Money Over 50
    Mount Isa
    Pandemic
    Pension
    Priorities
    Retirement
    Richmond
    Risk
    Sharemarket
    Superannuation
    Tax
    Travel
    Uncertainty
    Wealth
    Winton

​HOME
WHAT WE DO
WHO WE ARE
PODCAST
BLOG
CONTACT US

Important Information
Financial Services Guide
Privacy Policy
Lighthouse Financial Advisers Townsville
​
Tel 07 4772 0938
Email mail@lighthouseadvisers.com.au
45 Ingham Road West End Townsville Qld 4810

Lighthouse Financial Advisers Townsville Pty Ltd ABN 26 146 225 505, 45 Ingham Road, West End Queensland 4810 is the holder of an ASIC Australian Financial Services Licence (AFSL) #471826.

Website by Grey and Grey
  • Home
  • What We Do
  • Who We Are
  • Podcast
  • Blog
  • FAQ
  • Contact Us