Reaching retirement is a little like climbing Mt Everest.
The ultimate goal is to reach the Peak.
You spend many years working hard to save and manage your money along the way to fund your retirement. Then you spend many years on the way down using the money to create experiences and make the most of life.
But like most things in life, there are risks to manage along the way. Some you will see and others you will not.
The risks you encounter on your way to the Retirement Peak are no different from the ones trekkers experience when making their way to top of Mt Everest. One wrong miscalculation and you lose your life. A massive price to pay for one wrong move.
Not quite the same with reaching retirement but there are still consequences of getting it wrong.
In reaching the Peak of Mt Everest, the dangers start from Base Camp with increasing risks making your way through what they call the death zone, the final stages to the peak.
The risks of climbing Mt Everest range from avalanches, crevasses, weather conditions, rock falls, other climbers and oxygen are the many risks that face climbers.
Suffice to say you need to prepare well in advance to deal with the challenges of climbing Mt Everest.
It’s become one of those bucket list items to be ticked off.
However, under prepare and you could pay with your life.
One big risk is hypoxia, which is where the brain doesn’t get enough oxygen. This then impairs your ability to make judgment calls.
So much so when I was researching the risks of climbing Mt Everest this seems to be one that you must be well prepared for.
It’s suggested that prior to making your way to the summit that you have a strict turnaround time.
One whereby you put the importance of your life first rather than risking it all just to reach the peak. Such is the risk of hypoxia.
That final push to the peak can drive you to make decisions that are driven on desire/making it to the top without any consideration of what could go wrong.
Not only are the risks massive on the way up but the same is true on the way down. I had read somewhere that more people actually die on the way down than on the way up.
After pushing themselves to the peak, they have little to nothing in the tank for the trek back down.
Why is this even relevant to Retirement Planning?
It’s very relevant.
Firstly their needs to be a solid plan on how you are going to make it to retirement safely.
That means knowing what all the risks are and navigating them safety.
What are the risks on the final push towards retirement?
#1 Invest in one asset class (ie. 100% Australian shares).
I see this one all the time. I continue to see people go it alone and invest the majority of their wealth in one or two asset classes. This breaks the number one rule of investing, diversify, diversify and diversify. When the market corrects in those assets, be prepared to see your wealth dimish extremely quickly.
#2 Investing in the new shiny investment scheme.
I’ve seen this time and time again. From investing in Bitcoin (I’m not convinced) and many other investments. One recent one I saw recently was a gentleman who invested their life savings into US investment properties. Besides doing he also got sold on development deals only to lose the lot. How devastating. I felt really sorry for these guys, their life savings up in smoke struggling now to just make ends.
#3 Misjudge the level of risk you are comfortable with.
Another person I saw recently, 100% Australian shares while their attitude towards risk was reasonable conservative. Yes, they have had a great ride but what happens when markets correct and they had not anticipated it? The market’s not going to be looking out for them. Emotions are driving investment decisions rather than what actually works.
#4 Thinking you need to aim for 10% returns when 7% will get you there.
Sometimes trying to push that little harder to get to a certain number when in fact accepting a lower return would get the job done. There are risks in pushing too hard in the run to retirement.
#5 Thinking you can manage money better than the experts.
While I accept the opinions on the industry at times pushes people to manage their own money, considering how much you really know about investing in critical. I know I wouldn’t try and fix my car knowing if I got it wrong, I’m putting my family at risk.
#6 Investing 100% in new investments like Bitcoin.
Sure, holding a small allocation is ok but do you really want to risk your life savings on something so speculative?
While this may sound exciting, exciting can lead to dangerous investment strategies. I’d prefer to low key boring investment strategy. Knowing what actually works is key.
#7 Not seeking advice in areas you are not an expert.
While there is a cohort of people who believe it is a complete waste of money ( and I don’t blame them given what has come out from the Royal Commission), it can be highly valuable and stop you from making big mistakes.
The biggest value an adviser can add is in helping you manage your behaviour. This is the route of most mistakes people make. Studies have shown the value add in this aspect alone is between 2-4% of assets managed.
I will talk more about this in the coming months.
I personally feel, particularly people who have become clients would have been far better off coming in years earlier. In some ways, I feel annoyed I could not have done something earlier for these guys that would have saved them from making any bad decisions.
#8 Cancelling insurance cover prior to funding your Retirement.
This is a big one. Work all your life building wealth and canceling it when you still need it. I saw this recently as well when I met with someone recently. Transferred all their super to a Self Managed Super Fund and let their insurance go. One of them had been injured permanently unable to return to work. I asked whether they had insurance in their super as I knew there would have been compulsory super in the super fund they held due role they were in. They said they had no insurance as they transferred all their funds to the SMSF and let the insurance go.
I felt sick to my stomach. The outcome for them could have been so so much better if they had retained it. I just wish they had decided to see someone much much sooner.
#9 Thinking the world is collapsing, holding everything in cash.
This one really gets to me. Recently I had another person come in to see me. They had been receiving newsletters from a doom and gloom media organisation continuously saying markets are going to crash.
Let me say this, no one knows what markets are going to do. However, I advocate a process to protect your lifestyle when things go backward. If you have read these posts previously, you’ll already know this.
Listening to this hype they moved all their investments to cash 2 yrs ago. 2 yrs ago. Argg. Just look where investment markets are now. That alone cost them around $200k. Their situation could have been far better by not listening to what I call financial pornography. I really felt for these guys at they would have been set up nicely. Now they have to consider their options.
While not a comprehensive list of the risks you face leading into retirement, they are the more common ones.
More often than not they are due to behavioural issues. And, it’s not their fault. Sometimes they are acting out of fear, sometimes perceived opportunity and most of the time overestimating their ability to make decisions about areas they have little expertise or knowledge in.
They are easily overcome if you follow strict systems and processes.
So how do you overcome these risks?
Bring it back to the basics:-
#1 Know the retirement you are working hard to achieve.
Articulate it, even if it’s only an educated guess it’s better than what most have. If you haven’t already you can download our Rock Retirement Guide here>> it’s will help work it out without the overwhelm.
#2 Know your numbers.
While life is about living and we advocate a balanced approach to living life, it’s important to know what you are going to need to confidently reach your retirement peak.
#3 Have a plan for how you are going to reach your retirement peak without taking any unnecessary risks.
#4 Just like scaling Mt Everest, have a plan for when things don’t quite work out the way you had planned.
#5 Understand that while you may reach your retirement peak safely, there are risks that need to be managed as you go from accumulation to generating an income in retirement.
Being prepared is part of a confident retirement.
So, now it’s your turn to put this into action and formulate your own retirement plan.
Finding it hard to work through it yourself?
Book your Confident Retirement Gameplan Call here>> and we’ll spend 30 mins over the phone helping you build the first stages of your Gameplan for retirement. It’s at our cost and you’ll have the framework to achieve your retirement with less risk and more confidence.
Have any questions, feel free to email me at email@example.com
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Glenn Doherty – CFP – Founder & Financial Organiser at Jigsaw Private Wealth