Many people are familiar with investing for retirement — accumulating assets for future use — but investing in retirement tends to receive less attention. Indeed, there is a lack of familiarity with the issues that need to be considered in the decumulation phase of retirement. These include longer lifespans, determining a sustainable income level, preparing for unexpected life events and planning legacy assets. All of these need to be considered in the context of a post-retirement investment strategy, which is subject to financial market volatility and the effects of inflation. The bottom line is that every individual’s retirement assets will be expected to work harder for longer. Here are some practical suggestions for investors to keep in mind when discussing their retirement goals with their financial advisers.
How should retirees view their post-retirement investments?
Firstly, we shouldn’t consider retirement savings in isolation. Often people will have a range of assets they intend to draw on in retirement. For example, a retiree might have a state pension, an occupational retirement income, mutual funds, real estate assets as well as personal savings.
Given the potential range of investments in a retiree’s post-retirement arsenal – and the range of needs and wants to meet in their new stage of life – it can be helpful to identify and categorise the inputs and outputs, which are the types of expenses likely to be incurred and how they will be funded. This exercise can help facilitate investors’ conversations with advisers to assess how their retirement needs can be satisfied with the resources they have.
To pull the pieces of this puzzle together, we can divide post-retirement needs into four key categories.
The next step is for advisers to help retirees structure a post-retirement plan so that each category is matched by the most appropriate and effective investment mix.
The table shows the characteristics of each category, and importantly links each one to investor goals and objectives.