Today’s retirees face lots of challenges when it comes to investing their nest eggs.  Look around and you’ll see the trouble the drought is causing our local economy.  But the economic slowdown is not just a local issue.  According to the International Monetary Fund (IMF), the global economy is stagnating, with growth prospects of just 3% in 2019, the lowest since the Global Financial Crisis. 

At the same time, interest rates are at all time lows. Great news for young people with mortgages, or those starting out in business, but a real headache for retirees who can’t afford to live off the interest payments.  

And the share market is fully priced too.  The Australian market is currently at record highs. It means that the short to medium-term outlook for shares is uncertain, with more risk of price falls than a price boom. 

Time to take control

If you’re approaching retirement in the next few years, or already living in retirement, it’s time to take control of your money. The investment risks you face in retirement are different, and what has worked in the past simply won’t work for you in the future.

Here are the three things you should be doing now to make the most of your retirement savings.

1. Extinguish the mortgage 

Most of us reach retirement with a mortgage still outstanding on our home.  But life is simpler in retirement when you own your home outright.  When interest rates are low, there’s a real opportunity to pay down your mortgage.  Do a budget, and increase your mortgage repayments by prioritizing them over everything else. 

You won’t regret it.  Most of us don’t choose the timing of our retirement.  It’s forced on us by circumstances.  Take control and extinguish the mortgage now while interest rates are at all-time lows.

2. Rebalance your investments 

Australia holds the world record for the longest run of economic growth.  It’s been 28 years since Australia had a recession.  This sort of stability has provided business confidence, and has translated into performance in the share market.  Currently Australian share prices are at record highs.

It’s likely your super has benefited from the share market boom, and that your balance is way ahead of where you expected it to be. It’s time to reduce risk.  Nobody ever went broke taking a profit, so now is a good time to review things.  If you sell some of your growth investments at inflated prices you’ll reduce the risk in your retirement nest egg.

3. Change your perspective 

Most financial planners or super fund advisers will recommend a ‘balanced fund’ after asking you a few questions about risk. But this approach is overly simplistic and usually wrong for retirees.

It’s not just about your attitude to risk. Advisers need to take into consideration your financial capacity to withstand risk.  With interest rates at all-time lows, most retirees simply don’t have the ability to withstand a market crash.  

But they can if they plan for it.

If you’re approaching retirement or currently living in retirement, consider separating your short-term investments from your long-term investments.  Set aside enough money to pay for your needs over the next three to five years, and then invest the rest for growth.     

In this way, you’re covering your short-term and long-term risks.  

If you’d like to know more, reach out to your financial adviser.  And if you don’t have one or you’d like a second opinion, let us know.  

It’s all about preparing for the unexpected things. Because it’s not a matter of ‘if’ but ‘when’.

Michael Bowman and James McMaster are co-founders of When Financial Solutions