Early retirement planning never hurt anyone. A financial adviser Tuy explains the steps many of his 50-something clients take in order to make the best retirement plans.
Retirement planning strategies
For financial adviser Tuy, financial advice isn’t about making the most money all of the time. “It’s about coming up with solutions and strategies to help you meet your personal goals.”
When to plan for retirement
“When people hit their 50s, those strategies are often around retirement lifestyle,” he says.
Tuy likens his role to planning a journey: “Someone asks you the best way to get to Docklands from Melbourne. You can run, drive, or jump on a bus or bike to get there. They’re all viable and your adviser will help work out what’s best for you, your budget, your family and your values.”
The statement of advice is the client’s comprehensive game plan to achieve all the things they want to do. “There will be about 20 pages that are very specific to your situation,” Tuy says. “It explains what you need to do to achieve your goals with various scenarios modelled – your current position versus your proposed position. If there’s more than one valid strategy you’ll be able to see them all, with an explanation of why one was chosen over the others.”
A comfortable retirement
Heading towards retirement, Tuy says the client and adviser need to work out what levers to pull in the coming years. Key questions that need answering are “what do you want your retirement to look like?” and “when do you want to retire?”.
According to Tuy, the answers vary enormously.
“They might say, ‘I want to continue living near my grandkids and buy a caravan for long road trips’. Or they might say ‘I need $60,000 a year for the rest of my life’. My job is to take all the things that require money as the basis of a smart retirement plan.”
Tuy emphasises that the backbone of an effective financial plan is the client’s cash flow, so his first step is to get a client to do an honest budget.
“It’s my job to work out the details of what’s possible. Once I understand your cash flow, I can work backwards from your goals. Basically, I make sure the client knows that if they spend just $x per week and invest $x per week for the next six years, they’ll achieve the retirement they want,” he says. “If they commit to that, the rest of the plan takes care of itself.”
Our budget calculator is another way of tracking your spending. In Tuy’s experience, clients usually find living within their new budget very achievable: “It just takes some basic habit tweaking,” he explains. “It could be as simple as deciding to put your future first. By that I mean every time you get paid, let’s invest more or use some to reduce your debt. What’s left over is your spending money.”
Tuy points out that as a society, we do the opposite. We spend first and what’s leftover we invest. “Can you guess what’s left over for most people at the end of every pay cheque? Nothing. An adviser can help change that.”
He admits some clients need a reality check.
“I might have to say ‘You know what? You actually can’t stop working now. We need you to work part-time for three more years’. They see it as, ‘All right, I’ll work three more years to have $60,000 a year for the rest of my life and leave some money to the kids’.”
Tuy tries to automate his clients’ finances: “It ticks along in the background and we review every year to make sure they’re still comfortable with everything.”
Downsizing is a consideration for many. Tuy has observed that most clients won’t downsize until they have to. “I pitch it as an ace up their sleeve. At the moment, they may be looking at an income of $30,000 to $50,000 in retirement. But if they downsize in 10 years’ time, we’ll look at the impact on any age pension, their ability to contribute to super, income tax and the retirement income needed.”
Modelling for SMSFs
Tuy admits that while self-managed super fund clients are generally more hands-on in their investment decision-making, they still value a retirement adviser for retirement planning help and scenario modelling.
“An adviser can very accurately crunch the numbers around what their retirement position will look like. We have sophisticated algorithms that include tax, cash flow, assets, liabilities, splitting super contributions with your spouse, social security and more.”
He says it’s rare that even a super self-directed client could stack up everything to answer a simple, “how much do I spend per week to make all of this happen?” scenario.
“Anything they want to do, we can model. And they know that all the fund managers and investments we give them access to have been stress tested.”
Ensuring the kids get what they should
“I might say to the client, ‘Make sure that if anything happens to you, your partner or your kids call me because I know about your finances’. I can get everything together quickly for an easier estate transition.”
Most people will find there are three or four possible financial strategies they can implement in their 50s. For Tuy, giving advice isn’t about the size of your nest egg.
“It’s about planning to use whatever you have to achieve the retirement you want. Getting advice around your budget and the strategy that will really deliver for you are the keys the best financial advice can give you.”
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Reproduced with permission of National Australia Bank (‘NAB’). This article was original published at https://www.nab.com.au/personal/life-moments/work/plan-retirement/planning-in-50s
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