Clarity, Confidence & Control: How one couple negotiated their feasible retirement plan?

Michael and Jane had largely gone it alone. They had built up a reasonable sum in their super along with an investment property (approx $1.4m).

Over the last few years they had spoken to colleagues and friends about preparing for retirement. However, they were no closer to gaining the confidence they wanted. They were at the crossroads, wanting clarity on their position and whether in fact they could retire.

Life was passing them by and they were motivated to gain more time freedom.

Time to enjoy life a little more. Travel when they wanted too, not when work allowed them too. They really wanted the freedom to step back from their jobs and smell the roses.

For Michael and Jane, they believed they were in a reasonable financial position, but the fear of running out of money was stopping them from pulling the pin.

They wanted clarity, confidence and the control to retire on their own terms. Hopefully, leaving them with plenty of time in their active years of retirement to pursue things they had not had the time for.

That’s when they reached out to us for help…

As we gained an understanding of Michael and Jane’s position, it was clear they did not have a framework to think through their retirement position and options. They simply had no plan.

With no plan you put your retirement at risk…

Critical was setting a solid foundation if Michael and Jane were to retire with confidence.

Building Out A Retirement Vision

You wouldn’t build a house without a solid foundation, would you? Retirement Planning is no different, you need a solid foundation to start with.

It all starts with building your retirement vision. Many miss this critical aspect of their retirement plan.

Sure many have their bucket lists but then what. What do they do to fill in their time outside their big bucket list?

When we sat down with Michael and Jane, we walked them through a number of exercises to firstly understand where they were in life right now.

On the whole, they were pretty comfortable where they were in life.

However, there were a number of areas they were struggling with. Feeling guilty about spending money. Moreso in retirement as they felt they did not have the peace of mind they needed to spend freely in their retirement years.

There was the money side which was making them extremely nervous combined with wanting to spend more time with friends and family.

Now that we understood their concerns we progressed to an exercise to frame what was important to them as a couple.

Another critical step in making sure both partners are on the same page. It does not mean you need to be doing everything together, but have joint values as they approach retirement.

There’s a great saying. “I married you for better or worse but not for lunch”. Meaning you’ll have shared and separate interests and probably won’t want to spend 24/7 with each other.

What was important to Michael and Jane as they were approaching their retirement runway?

#1 Feel confident in their finances

They wanted to understand their financial position and if they were in fact on track to fund the retirement lifestyle they were dreaming of. It was important to them to understand their numbers so they could make the decision when to retire.

#2 Make work optional

While they enjoyed their work, they’d hit a point where work was no longer what it used to be. Michael and Jane felt it was time to pursue other things in their life. While there was no set time frame, they wanted to retire on their own terms and when they were ready.

#3 Become more active and healthy

Working long hours while managing a household and family, it can take it’s toll on your health. Michael and Jane realised, if they wanted to enjoy the early part of their retirement, they also needed to work on their health to make the most of their active years.

#4 Be more socially active

Due to Michael and Jane’s hours at work, it left limited time for them to indulge in more social activities than they would have liked. It was important to meet new people and forge new friendships along with nurturing the ones they already had.

#5 Spend without guilt

For Michael and Jane, it was critical to understand their numbers financially, whether they had enough to fund their lifestyle in retirement. At this point they did not have the confidence they wanted. They wanted to be in a position to spend their money freely but now they would not risk running out either.

Was Michael and Jane’s retirement feasible?

In the first instance, no…

On the first pass of running their long term cashflows it was clear they would run out of money in their 80’s.

Now for some, that may be okay, but what if you live a long life and well into your 90’s? You’re still going to need money.

We worked with Michael and Jane to run various scenarios, tweaking their cashflow and landed on what they were comfortable with in terms of their feasible retirement.

For them, it involved a stepped approach to their retirement income. Understanding they would spend more in their active years and gradually their spending requirements would reduce.

At this stage, Michael and Jane felt so relieved, so much so they started putting a date on their retirement.  So confident after this step, they started to talk about planning their trip.

Making Michael and Jane’s retirement plan resilient

It’s one thing to have a feasible plan, it was now time to make it resilient and build in a number of safety margins.

But by building out their feasible retirement plan, it highlighted a number of blindspots which have not been known or addressed. Namely, inflation, longevity and sequence of return risks.

Here’s are a number of areas we identified which would make their plan more resilient:

#1 Build their funding strategy – if they retained their current structure, they would have been putting their retirement lifestyle at risk.

We built into their plan a number of safety margins which would allow them to comfortably and confidently extract their level of income. Without worrying what investments markets were doing.

This involved implementing what we call a “bucket strategy” in their super fund where they had a bucket of investments for emergencies, funding their income and for capital growth.

#2 Appropriate investment strategy – by working through Michael and Jane’s long term cashflow we were able to determine the level of return they needed to achieve.

This led to them accepting a lower level of risk than they currently were taking.

You feel a loss a whole lot more in retirement than any gain…

As you approach retirement your focus needs to turn from maximising returns to return on income. Accepting a higher level of risk and thus achieving a higher return may in fact put you in danger in retirement. A concept many are blind to as they approach retirement.

Retirement is all about how you generate your income to fund your lifestyle without risking running out of money.

#3 Creating a paycheque – the next step was to ensure they would receive the level of income they required when they retired. To ensure they did not have to be concerned with what investment markets were doing.

We added a number of safety margins in their super to allow them to confidently extract their income when Michael and Jane needed it.

Optimising Michael and Jane’s retirement plan

Now that we had the basic structure in place for Michael and Jane’s retirement plan, we explored opportunities to optimise their plan.

#1 Tax minimisation – As Michael and Jane were close to retirement, they were already doing what they needed to in terms of their super contributions.

#2 Investment Implementation – We analysed their current arrangements to see if they were appropriate based on the structure they needed.

We identified the current investment strategy they had in place was not appropriate for their plan. It was not performing as well as it could have been. Along with taking more risk than they needed to accept.

We devised an appropriate investment strategy based on evidence based investing principles which would be more appropriate for their needs. This would ensure they would be achieving market returns and not put them at risk of underperforming.

#3 Super and Legacy – We identified a blindspot here. They were at risk of leaving a generous tip to the ATO if they didn’t make any changes.

We crafted a plan to reduce any tip they would be leaving to zero. However, this would take a number of years to implement. Meaning more money for their children.

Their end result was Clarity, Confidence and Control

Michael and Jane were stoked. You could see the weight lifted from their shoulders, knowing they had now done everything they could to set themselves up for a comfortable retirement.

They had the clarity around their financial situation to make confident and informed financial decisions.

They had the confidence they needed to make the big step into retirement.

Now, they had the control over when they could and wanted to retire.

What were the financial benefits Michael and Jane received?

#1 Firstly, we identified a cheaper super fund than the one they were using. One which would be able to facilitate their retirement strategy. Achieving a saving of approx $3k pa, over 10 yrs that’s an extra $30k in their pocket. That’s a nice European holiday…

#2 Reducing the level of risk they were exposed to in their super fund. Reducing risk levels by 23% without any impact to investment returns.

This will mean Michael and Jane will sleep better at night in retirement knowing they have minimised the falls they’d experience when investment markets go down.

#3 Increasing the level of assets which will flow through to their estate and ultimately more money to their children. This resulted in a maximum benefit of approx $160k.

#4 We identified by applying an evidence based investing approach that would have provided a better outcome over the last three years. All the while taking less investment risk.

Had Michael and Jane come to us three years ago, they may have been able to add approx $30k to their super balance. Compound that over their retirement and it adds up pretty quickly.

All up, not only did Michael and Jane have the peace of mind they needed. They now had a robust retirement to guide them as they transition into retirement.

Upside from the advice, approx $200k. Not a bad outcome for Michael and Jane.

Achieving Retirement Confidence

If you want confidence in your retirement plan, it requires a framework to think through your retirement decisions methodically.

Don’t leave your retirement to chance…

Michael and Jane’s results are typical of what we achieve by applying a proven framework.

While not all results will be the same. It will be based on individual circumstances and results will vary.

If you would like to find out more how we can help you craft your own retirement roadmap, Retirement Clarity Call with Glenn by clicking here…

Glenn Doherty – CFP – Financial Planner | Retirement Planning Specialist |Retirement Planning Made Simple for aspiring happy lappers and avid travellers within 7 years of retirement

We work with people in Adelaide and around Australia virtually via zoom!

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