Could You Afford To Take Less Risk With Your Retirement Investments?

I met with George and Hannah today. They are in their late 50’s and looking to retire. George’s employer super fund is invested in the funds more aggressive Growth option. They were concerned that they may not have enough money to retire on comfortably, and at the same time concerned about continuing to take what they believed to be relatively high investment risks with their super in retirement.

After spending some time sharing their future plans and their expected retirement expenditure needs, we calculated some lifelong cash flow projections for them. The results were very interesting.

Using reasonable assumptions regarding future inflation and Centrelink potential, the lifelong cash flow projections seemed to indicate that if they maintained their Growth type investments within their super, they may never run out of money.

Whilst this was good news, it didn’t really help ease their anxiety about how much investment risk they had in their super fund.

So we re-calculated the lifelong cash flow projections using more modest returns that would be expected from a more Cautious portfolio. To their surprise and delight, the results seemed to indicate that they would still achieve their retirement cash flow needs until a ripe old age.

Granted trying to predict the future is impossible, however without the benefit of considering life long cash flow projections, I find many retirees have their retirement nest eggs invested in portfolio’s that contain a greater investment risk than they feel comfortable with.

In my experience concerns about money, and specifically about running out of money too early causes a great deal of anxiety for retirees.

Investing in retirement should not be about achieving the highest return. It should be about achieving an appropriate return within the level of investment risk that allows you to sleep at night and still achieve your retirement lifestyle.

Next time you review your retirement plans with your advisor, consider if you can afford to take less risk with your retirement assets.

Retire smiling.