Longevity risk, is simply the risk of running out of money too early in retirement. Of course, no one knows how long they are going to live, however, as Financial Advisers, we can help mitigate longevity risk by:
Completing Financial Modelling to indicate a clients wealth trajectory based on their desired living expenses. If a clients wealth reduces too early in retirement, it can often lead to a trade off decision of:
Retiring later or
Spending less or
Changing the investment strategy or
Changing/reducing certain goals
Implementing a 'bucket' strategy, which involves holding a certain portion of the retirement portfolio in cash, so that if investment markets decline severely, pension/income payments can be made from the cash component, rather than selling down the assets whilst in a market dip.
Potentially incorporating guaranteed lifetime income products (such an Annuities). However, as a trade off for receiving guaranteed income, the rates of return are typically less than a long term account based pension product.
Having a 'plan b', for instance if a client's life expectancy goes well beyond the average, this might involve downsizing the family home, utilising the Home Equity Access Scheme or reducing the amount in which the clients had hoped to gift their beneficiaries in inheritance.
Assisting with Cashflow advice by reviewing client's budgets and spending allocations to work out whether there are any areas where money could be saved which doesn't really affect the client's quality of life. Additionally, there is also often discounts associated with receiving a full or partial Age Pension or, if not eligible, via the less onerous Commonwealth Seniors Health Card.
Working with a Financial Planner helps provide you with peace of mind in retirement so you can enjoy the things you love!
If you need help, please book in for a chat below.
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