When the economy is growing steadily and the share market seems like it always is going up, you may have noticed that many of your friends and professionals who are willing to provide you with “free” advice on how to invest for retirement.

The advice is usually associated with how well they have done with certain investments investing in “blue chip” shares to obtain and franking credits or purchasing an investment property in their self managed superannuation fund.

The COVID-19 health pandemic has shown that this advice is floored with many so-called blue-chip shares declining in value and not recovering as other investments have and self-managed superannuation funds with limited diversification have not been able to manage the decline in investment or property markets.

There are similarities with this simplistic approach to retirement planning and investing with the quote by the former Secretary of Defence of the United States of America, Donald Rumsfield.

There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know – Donald Rumsfield

A financial advisor with the appropriate experience, qualification, and education is able to help you identify the ‘unknown’ retirement risks and assist you in preparing a retirement plan that is robust and has flexibility so that you retirement goals are able to withstand downturns in the economy and investment markets.

Your retirement plan should that have the flexibility and a strategy to manage the following retirement risks:

  1. Sequencing risk
    Downturns in investment markets in the early years of retirement can reduce what you need to last your whole retirement. Strategies are required to mitigate the impact of sequencing risk, whilst at the same time not being too defensive so that your life goals are not able to be achieved.
  2. Expenditure risk
    You may incur additional expenditure in various retirement phases. These ‘unknown’ costs are difficult to budget for, however, they can have a devastating impact on your retirement plan. A process is required to look forward and anticipate what might affect your retirement plan.
  3. Implementation risk
    Several strategies are available to minimise retirement risks, however, if you are not aware of the strategies or prepared to use them, your retirement plan may be impacted. The strategies are constantly changing and evolving over time, as more and more people retire.
  4. Inflation risk
    It is a common strategy as you transition to retirement, or are in one of the later retirement phases to adjust your investment strategy to one of less risk. Whilst this strategy may help to mitigate sequencing risk, it provides very little protection against inflation and longevity.
  5. Longevity risk
    Australia’s population is aging and we are all living longer due to advancements in health care and awareness of staying active and healthy. Whilst this is good news, there is a risk that you will outlive your retirement savings.
  6. Investment Risk
    Simplistic investment strategies may be easy to understand, however, they do not provide protection for unknown events and uncertainties that could eventuate where economic, political, and investment conditions change.

You can have a long and happy retirement, using a retirement plan that helps them manage the risks of retirement. When you have appropriate retirement planning strategies in place, you are able to focus on enjoying retirement without being concerned about downturns in the sharemarket or a fall in property prices.

For further tips on how to prepare for retirement, download the attached ebook “How to live an Inspired Retirement” or listen to the “Real Life Financial Planner”, Geoff Ivanac on our retirement podcast, “Real Life Retirement Radio”.

General Advice Warning: Any advice on this site is general advice only and does not take into account the objectives, financial situation, or needs of any particular person. It does not represent legal, tax, or personal advice and should not be relied on as such. You should obtain financial advice relevant to your circumstances before making any decisions