Pay-cheque to play-cheque: How to choose the right retirement income strategy with confidence?

You want to enter retirement with the confidence you’re going to have enough money to pay for your EPIC retirement lifestyle.

After all, you don’t want to live with regret. The regret of not doing more things in retirement when you could have.

But uncertainty lies ahead…it can be nerve racking at best!

It’s a major transition to can’t afford to get wrong.

Choosing or knowing how you are going to withdraw your retirement “play-check” will go a long way to having that confidence.

The confidence that no matter what happens you know where your “play-cheque” is coming from with certainty.

While there is no right or wrong strategy. It’s the strategy which suits you and your lifestyle requirements. Not what your friends or neighbours are using.

It may not even be the one you have been reading about. It’s about what’s going to be the best fit for you and your unique circumstances.

Whatever retirement income strategy you use to withdraw your “play-cheque” in retirement.

It needs to give you the confidence to free you from worry and angst. So you can confidently live your best lifestyle without fear of regret.

While your retirement income strategy to pay your “play-cheque” in retirement might be optimised. If it doesn’t remove or eliminate worry. So you feel like you’re going to be okay. Then it’s not going to work.

It’s one part science and one part art…

Knowing how you are going to safely pay your “play-cheque” each month will ease the stress and worry that comes with leaping into retirement.

Framing the way you think about retirement could change your mindset

Proper retirement planning is a little like planning to have a family. It comes with sticker shock.

I remember when we started planning a family. As a financial guy in his 30’s most probably didn’t help.

I was acutely aware of the cost of education and raising a child. It was enormous. The sticker shock was enough to make you think twice. Do I really want this?

But the enormity of the cost did not put us off. We knew it wasn’t in one BIG hit. The cost is spread over a long time period.

You just work it out!

Thinking about the cost of your retirement lifestyle in a similar way will go a long way to alleviating a lot of the stress and worry.

It’s not uncommon to have a couple in their 60’s learning their retirement lifestyle will have a price tag of $2.5 million or even more. It’s enough to experience heart palpitations.

Remembering this cost is spread over a period of 30 or 40 years. You have control over how much you do and don’t spend.

The right mindset is key…

For the last 30 or 40 years you’ve been accumulating assets. Now you have to withdraw money to pay for your retirement lifestyle.

The mere word “withdrawal” has negative connotations. And no one likes to see their investment balances going down.

A better way of thinking of your accumulated money is deferred income.

After 30 or 40 years of accumulating your financial assets. There comes a time when you need to access your deferred income to pay your “play-cheque”.

Another way of thinking about it is like you have been growing and maintaining a fruit orchard. It takes a long time to bear fruit.

You’ve been working to improve the soil…fertilize the soil.

You finally get to a point where your orchard starts to bear fruit. It’s now time to reap the rewards of all that hard work.

Think about your retirement savings as deferred income.

The way you think about it will make a difference.

Creating a framework to choose the right income strategy for you

There is no right or wrong strategy to pay your “play-cheque” in retirement. There’s no test you can take and no one size fits all. Unfortunately. I wish there was.

It’s important that you start thinking about this in an organised manner. Thinking of it in terms of steps is going to put you in a position to make an educated guess. The strategy that’s right for you.

If you don’t think about this in an organised way. You’ll fall into the trap of being sold a financial product you don’t need or use random things that lead to whip lash.

What retirement income strategies are available to you?

The first step is knowing the strategies which are available for you.

If you think back to the three retirement income strategies we’ve talked about in previous posts. The safety-first approach, 4% rule and bucketing approach.

The approaches which are going to be available to you are going to depend on your financial resources. Comparing the “play-cheque” you want in retirement to the financial resources you have.

This will form your menu from which to choose from.

The retirement income dial

retirement income

Think of the options available to you. On one end of the dial you are going to have the safety-first approach.

This will be made up largely of guaranteed income sources. Think centrelink pensions and other guaranteed incomes sources like annuities and bonds you’ll purchase with your financial resources. Part-time employment may be part of the equation here.

On the other end of the scale is the 4% rule. You have a contingency fund and sell your investments as you need them.

Between 1 and 10, you have these marks. So for you, you’re thinking of where you might be in the available strategies on that dial. It’s likely you’ll be somewhere in between 1 and 10.

How full is your financial bucket?

When we think of a client’s financial resources, we think of them in terms of a financial bucket.

One of two things are going to happen to your bucket.

#1 Your bucket is going to overflow. Which means you land in an overfunded position. You have more money than you need to fund your retirement lifestyle.

Once you’ve added up all the costs of your retirement lifestyle and you find you’re overfunded. Then all the options become available to you.

Given you have enough, you may consider the 4% rule. You can safely withdraw 4% as your “play-cheque”.

But you might also have an income bucket as well. Where you hold safe or conservative investments to cover your income when investment markets fall.

You could consider guaranteed income products should you be concerned about the movements in investment markets.

#2 Your bucket is going to run out. Which means you are underfunded. Based on everything you want to do in retirement, you’re not going to have the financial resources to fund it all.

You’re probably going to want to take a more conservative approach. Chasing higher returns to make up the difference is a little like going to the casino. You’re down and willing to take more risk to make the money back.

A bad role of the dice, investment markets move in the wrong direction (experience sequencing risk) early in retirement. This could leave you in a pickle!

Many can’t afford to take that type of risk.

It could be a combination of centrelink, part-time work (to fill the gap) and guaranteed income sources (like annuities) or conservative account based pensions.

#3 Or you could be someone in between. You have just enough, it could work. Depending on how life unfolds it could tilt one way or the other.

You might find yourself landing in between a combination of the above three scenarios.

Leaning towards safety-first with enough money to cover your income for a set number of years. While the remainder is invested in shares and property to act as a hedge against inflation.

Potentially giving you more options if you get good markets.

Where you land in those three levels, will determine the menu available to you to choose from. When thinking about how you are going to pay your “play-cheque”.

What about your external factors?

While these strategies are focused on the financial aspect of selecting a strategy to pay your “play-cheque”. You can’t ignore your personal factors when choosing the best retirement income strategy for you.

Age – Your age will play a large part in the strategy you choose. Are you 55 with a long life expectancy ahead of you? Or are you 70 with less time to plan for.

What about your life expectancy (many underestimate this one).

Health – Are there health issues which need to be considered? Maybe your fit and healthy and a long life expectancy is ahead of you.

Or maybe, you’ve got some health issues which may prevent a long life and it’s all about packing in as much life as you can.

Like one of my clients. A lovely couple who had their parents pass away too young. Fearful they may experience a similar outcome. They made a conscious decision to pack in as much life as they can while they are fit and healthy.

Do you need to pack as much life into the years you’re fit and healthy or do you need to plan on your money lasting until age 100.

Family – Perhaps you still have children you need to still provide for financially. Or maybe parents to take care of.

Personality – Don’t forget about your personality! Are you someone who needs the security to help you sleep at night? Everybody has their own views on how much risk they can tolerate.

Maybe you’re someone who stresses all the time about your investments! Perhaps you’re someone who is comfortable with the rises and falls within your investment portfolios.

The key is finding the retirement income strategy which is going to make you feel confident. So you can rest easy in your retirement years.

As life unfolds, you’ll make adjustments

What we’ve provided is a framework to help you confidently find the right income strategy for you in retirement.

We know that the path from where you are today is not a straight line. Time bends and lines curve.

The challenge is navigating your retirement journey as life unfolds. There will be curveballs which will challenge you.

You may find you start off with a certain strategy, only to find part way through your journey you need to pivot.

It’s important you don’t focus on the perfect strategy, but find one which you are comfortable with and work off that.

Preparing is better than repairing

Another reason why it’s important to work with a specialist who can work with you to determine the right strategy to fund your “play-cheque” in retirement.

Eliminate all the stress and worry by be prepared. The sooner you prepare, the happier and more confident you will be about your retirement years.

Are you someone who is planning for your retirement, but don’t know where to start?

We help soon-to-be retirees in Adelaide and Australia wide keep their retirement dreams on track by showing them how to keep and maintain their retirement lifestyle. So you don’t have to worry about all the financial stuff.

Book a Retirement Success Session today!

Glenn Doherty – CFP – Retirement Planning Specialist | Retirement Planning for Over 55’s powered by Life-Centred Financial Planning

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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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