Retiring with financial confidence is harder to come by these days, particularly given the need to navigate capital security with long-term growth and while being faced with ongoing headlines of lofty equity valuations and historically low-interest rates.

To avoid being caught off guard when it is your time to retire, here are four curveballs to look out for.

1.  Longevity risk  

It is a fact; retirees are living longer. Someone born in 1947 has a life expectancy of 85 years, but according to the World Economic Forum, someone born in 1977 has a life expectancy of up to 94 years. An implication of this is the need for our capital to last longer; not just for our own lifetimes but for future generations too. Life expectancy figures are nice to know, although we pay little attention to them when planning our client’s retirement strategies. We coach our clients throughout their working lives to help them accumulate assets to a point at which the cash flow generated is sufficient to fund their eventual retirement lifestyle. This means the capital is left intact and should grow over the long term offering protection from inflation. For example, a retirement lifestyle that demanded $250,000 per annum requires an income-generating asset base of approximately $5.5 million. This assumes a 4.5% annual income earning rate, excluding a family home or personal assets, and effectively removes longevity risk from the equation.

2.  Healthcare costs

In our experience, it is a common misconception that retirement is less costly than working life. Whether it is travel-related expenses, home improvements, distributing wealth within the family group, or healthcare needs, retirement costs can quickly add up. The latter, being healthcare-related, is a major common drain on spending and often not initially budgeted for. Removal of longevity-associated risks as explained above provides flexibility to access capital to pay for high-quality medical care and comfort when needed the most.

3.  Effective asset allocation

Gone are the days when retirees can afford to invest three-quarters of their wealth in defensive assets such as bonds or term deposits. The income return is simply insufficient and if relied on would probably result in capital rather than cashflow being used to fund outgoings. To avoid going backwards, some unadvised investors are delaying retirement to work longer and in many cases overexposing themselves to dividend-paying shares or paying high prices for income-generating property. It is understandable if both these themes seem unattractive. Our approach to investment is largely unchanged for three decades and allows us to naturally balance strong income generation and inflation-adjusted asset protection to match a family group’s individual requirements.

4.  Don’t leave it too late

Research suggests that having a retirement plan in place should make you feel more prepared.  Although it goes without saying that it can be risky leaving it too late, seeking professional advice is vital and ensures that small actions over long periods put you in good stead for a financially secure retirement.