Are you in the retirement risk zone?
Are you in the retirement risk zone?
- August 12, 2020
- Posted by: Daniel McGregor
There is a period before and after retirement called the retirement risk zone… it’s a dangerous place!
It is typically considered to be the 5 years either side of retirement. This decade is when most people’s retirement savings reach their peak and start being accessed.
Often people work hard to squirrel away as much as possible in their last few years of working life. Then, once they retire, they gradually draw down on their retirement savings to fund their lifestyle.
It’s in the retirement risk zone where if not planned for, unexpected events could detail your retirement. If there is a sharemarket crash, an emergency or an unexpected life event, the results could be something that cause so much damage they can’t be recovered from financially.
That’s because it’s worse having a bad performing year when you have more money than when you have less.
As retirement savings go down over time, because they are being used to fund retirement, a bad performing year a long way into retirement will have a much smaller impact. At that point, the balance impacted is lower and there are also not as many years left to fund. It’s a similar situation a long way out from retirement, in that there are plenty of years for recovery before the money needs to be accessed.
In recent months we saw a huge fall in sharemarkets around the world but then things came storming back up again. If you’re in the retirement risk zone or approaching it, don’t waste another minute… let’s get on top of things now, before the next large fall leaves you exposed!
Unfortunately, if things go badly during the retirement risk zone, the potential fixes are often things people would rather avoid! It may mean having to delay retirement and work longer, live on less in retirement and therefore have a lesser lifestyle, or have to invest in more risky assets to try and make up the shortfall. None of these are great solutions.
There are different ways to approach the retirement risk zone. Adjustments can be made to how retirement savings are invested in the lead up to retirement, money can be saved and invested into more conservative assets to build up a stockpile or it could be a combination of these.
Whichever way you look at it, approaching retirement and then retiring is not something you want to do without a plan to navigate the retirement risk zone. You’ll have worked too hard to want to leave your entire retirement exposed.
These are not things that need to be feared, they just need to be managed and you may only get one shot at it. Don’t leave your retirement to chance, steer clear of danger and retire on purpose!
Smart financial decisions often come from having a sensible and well thought out financial plan. Yell out if you’d like help with yours from an independent financial adviser.
Cheers,
Daniel