How to structure your finances and safely generate a regular income in retirement?

Transitioning from your working life to your retirement lifestyle is a major life transition. Moving from a structured Mon-Fri 9-5 routine to little to no structure.

For some this can be an extremely daunting and stressful time.

The reality is your routine will change. Your financial arrangements will change and you’ll probably freak out a little.

Oh yeah, you’ll probably be booked up with more babysitting duties too.

One of the biggest adjustments retirees face is how they think about their money.

You’ve heard the saying “fail to plan, plan to fail”?

Planning for this once in a lifetime transition should start at least 5 years out from retirement, ideally 10 years.

It could mean the difference between a worry-free retirement or continually losing sleep over your money.

You’ve worked 30 years plus to this point. You only have one shot to get it right, so you may as well do it right.

How are you going to fill 368 hours in the week?

Weeks caravanning around Australia. Overseas trips (when you’re able to again). Take up new hobbies or interests. Spending more time with loved ones.

However you dream of filling your days and weeks, it’s going to need money to fund it all.

The biggest concern we see as people transition from their work life to their retirement years. Is how are they going to replace their regular paycheck.

Their whole working life they’ve relied on their regular income from employment. Their super had steadily increased.

When you’re super dropped, you didn’t need to worry as you had your regular income to rely on.

Up until now it’s been all about accumulation.

You want to do the planning at least 5 years prior to retirement!

Understanding your cash flow in retirement is critically important.

You’ve got to have a plan for how you are going to withdraw your income. Without worrying about what investment markets are doing.

2 reasons why this is so important:

#1 We know the share market is going to fluctuate. We don’t ever want you to be in a position where you have to sell investments in a down market.

When the market goes down you want to make sure your funds are there to pay your income.

#2 When you start taking an income from your super/investments, at times you’re going to freak out in retirement.

What you’ve done your whole working life is put money in every month or your employer has.

Your super balance has gone up, up and up. Yes investment markets have fluctuated but your super has grown in value.

When you’re retired, what’s going to happen to your super is as you start to withdraw your income it’s going to drop.

But that’s ok provided you’ve planned for your long term cash flow.

3 bucket approach to protect your long term cashflow

Imagine for a moment you’ve got this nice sports car. It’s cool to drive, goes fast and looks good.

But what if I told you that every 3-5 years or so you’re going to have a crash.

Would you think differently about the way you drive. Be more observant on the road or maybe consider a different car, one with a better safety record?

As you approach retirement it’s important to put more metal between you and the outside world.

For the purposes of this example, let’s assume all your money is together…

Bucket #1 – Cash emergencies

Or you can call it a get out of jail free card.

How much do you need in this bucket?

It depends on your circumstances but for most people anywhere between 6-18 months of living expenses would be enough.

It’s sole purpose is to get you out of a bind. Maybe you’ve had an appliance blow up on you or maybe you need to assist a child in need.

Bucket #2 – Income

Here’s where you start to put a little extra metal between you and the outside world.

Your whole working life has been all about accumulation. For the most part you didn’t need to touch your investments.

We know that on average you’re going to experience a market event. Whether it is a recession, war or as you’ve experienced more recently, a pandemic.

You don’t want to be forced into selling investments at the wrong time.

Understanding your cash flow timeline is critical in this step.

What are your cash flow requirements in the first 5 years of retirement.

You want to isolate your first 3-5 years of cash flow requirements in low risk/conservative investments.

They might bump along and move up and down a little but it’s going to be there when you need it.

Yes, they won’t earn a lot but it’s there as your extra metal between you and the outside world.

Your return will come when your investments take a fall…

Bucket #3 – Growth

While it would be great to hold low risk investments all the way through retirement. Your money isn’t going to last.

You’ve got to take into account inflation and longevity risk to name a few.

Unless you have a bucket load of money sitting around you’re going to have to take on some level of risk. This will help your money last longer through your retirement.

It’s ok for this money to move up and down.

How much risk do you take?

It depends on your unique position and retirement plan.

Since you only have one go at this you don’t want to take any more risk than you need to get the job done.

While the majority of the planning industry still use outdated risk questionnaires. Which lead to one strategy in most cases.

We take a different approach…

One of the deliverables to our clients is calculating the return they need from their investments to get the job done.

So they don’t need to expose their money to any more risk than they need to.

Driving the investment solution best suited to their individual circumstances.

Want to arrive prepared ready to transition into your next chapter safely and confidently?

While this sounds simple, and many say we have this. It’s the implementation, emotional decision making and ongoing adjustments which many get wrong.

We work with a lot of pre-retirees and retirees. Who are wanting more time freedom to enjoy the good things in life.

More time to explore the great corners of Australia. Time with grandchildren and family. Pursuing interests and hobbies.

All knowing they need not worry about money. It’s structured to last the journey.

If you’re someone within 5 years of retirement or already retired.

Wondering if you’re set up financially to make it through your retirement worry-free.

Wanting to see the trees from the forest and framework to make wise financial decisions.

We have a framework to help you set your retirement up for success. Which will deliver a safe and reliable income throughout your retirement years.

If you’re ready to fine tune your retirement plan. Want to find out how to secure your retirement income.

No matter what’s happening in the world or investment markets.

Schedule a complimentary Retirement Breakthrough call below.

Make it an Abundant Lifestyle in Retirement!

Glenn Doherty – CFP – Retirement Planning Specialist | Retirement Planning for over 50’s couples and individuals | Founder of Jigsaw Private Wealth

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Achieve some clarity and maybe a roadmap on how you can achieve a comfortable retirement.

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Advice Disclaimer: Any reference in this publication to the provision of advice refers to advice of a generic nature, and should not be taken as product or investment recommendations. Before any action is taken based on the information provided, independent financial advice from a licensed financial adviser should be sought. Financial Freedom Project Pty Ltd ATF GA & DC Doherty Family Trust Trading as Jigsaw Private Wealth is a Corporate Authorised Representative of Exelsuper Advice Pty Ltd. The information contained in this publication is of a factual nature only and is not intended to constitute financial product advice. Information is current as at date of publication. This is an online information blog. It does not imply an offering of securities.

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