I had an interesting experience recently in a new client meeting. One of the topics that came up was the difficulty in planning for Christmas this year, with the shops having been closed and the expected delays in shipping. The couple were really worried about not being able to organise Christmas as they wanted this year. I understand this, given the year we have had Christmas will be a very important time for families this year.
Of course the conversation moved on, and when I asked the couple what action they had taken to plan for their retirement, the answer was nothing. The contrast was stark. This year’s Christmas was causing stress, but having enough money to fund a rewarding retirement was not even a consideration.
Of course, there will come a time when having enough money to fund your retirement will become a source of stress.
A recent study by Challenger showed that 62% of Australians worry about outliving their money. According to the report women worry more than men, as women often have experienced income inequality in their working years. Women also tend to live longer than men.
The study also showed that the worry about money is 53% higher in those who will live on the pension.
Importantly, the study showed that people worried less frequently if they had received financial advice. I think this is partly because advice helps, but clients receiving advice are more likely to have a plan. Having a plan or roadmap gives a reference point. When your income stops it can be a confronting time, a plan goes some way to reducing the anxiety. It’s no different to getting in the car without a map. You can often get where you want to go, but with the odd wrong turn here and there.
The study also showed retirees with superannuation worried less than those who did not have any superannuation assets in retirement.
In fact, the study showed that after Climate Change the next largest worry for Australians is funding their retirement.
So why then do we spend more time planning for Christmas than retirement until retirement is nearly upon us? In our experience the most common answers include:
· Not wanting to know. We fear we won’t have enough and don’t want that to be confirmed.
· Procrastination – it is not pressing and so never gets to the top of the to do list.
· Cost – many people fear the cost will be prohibitive (it is not by the way).
· Education – some people worry that don’t have enough knowledge to meet with a financial planner without looking silly.
· Wealth – often people worry they don’t have enough to see a financial planner.
The earlier you plan for retirement the better your outcome. If you put $20 a week away when you are 30, that would accumulate to $166,057 assuming a return of 7%. If you wait until you are 55, you would need to save $250 a week to save the same amount.
We have worked with a number or retirees and no matter how much wealth you have accumulated income longevity is the key to enjoying retirement. The worst outcome sometimes is not running out of money, but living a miserable retirement because you are too scared to spend money.
Retirement planning doesn’t take long. After the initial plan is in place, one meeting a year to ensure you remain on track is all that is necessary. In fact once your plan is setup it takes far less time than planning for Christmas does. If we could all focus just a little bit of time and energy on our finances, we won’t be worrying about how to afford Christmas presents when we retire.
At Investwisely we specialise in retirement planning. Not just the financial part, but also working to understand your concerns and reduce the stress of relying on your savings rather than your salary.
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