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3 threats to your retirement

Preparing for retirement is a long game – a marathon more than a sprint, but all the preparation in the world can come undone if you haven’t considered some of the risks you face when you retire.

There are 3 main risks we like to highlight with everyone, and no matter how optimistic you are, they can have a big impact if they are unexpected. As with all risks in life, it's important to understand the risks, manage or avoid them if possible.

Sequencing risk

We all know investment markets go up as well as down, and most of you will have been through this roller coaster a number of times during your working lifetime. In retirement however, protecting your nest egg of assets can have a stronger focus, as you may not have the time to recover from a market downturn like the GFC. Sequence risk is the risk of retiring in the wrong period where you may incur a number of years of poor performance, taking a large toll on your balance. These events are very difficult to predict and can be devastating for some investors. There are a number of ways you can protect against sequence risk and these should be discussed well in advance of your retirement.


It’s tempting to want to play it safe in retirement and invest only in defensive assets such as cash and bonds, however with interest rates at record lows, this leaves you vulnerable to inflation. Inflation is the rise in the price of goods over time, reducing your spending power. The easiest way to understand inflation risk is to take a look at everyday items such as a litre of milk. Currently, one litre of milk is around $2.69 yet in 2040 the same litre of milk is estimated to be $4.85. You are spending your money on the same item but they cost more. For this reason, most retirees have to become investors and invest some part of their balance in growth assets to help maintain pace with inflation.

Family risk

The other biggest threat to your retirement is your family! This one surprises people when we bring it up but makes sense when you give it some thought. If something were to go wrong with your kids (health, relationship breakdown etc) what would you do? You would likely want to help them out financially if possible, right? Yes and that is where we see this as a big threat to your lifestyle. If you have more than one child this could be expensive or viewed as inequitable and change the family dynamics. In our experience, having an open discussion with your children about their finances before you retire can be invaluable. If they have a mortgage or young family, have a discussion with them about life insurance and income protection. It may even be more cost-effective for you to pay their premiums for a few years. After all this may be a couple of thousand dollars a year versus tens of thousands if they couldn’t work! Letting your adult children know that you are entering a different phase of life now and that your financial position is changing gives them notice to consider their own more seriously.

Preparing for your retirement should include a healthy discussion on these three areas as well as a few others. Seeking advice early can help you to prepare and plan in a considered and well thought out fashion.

If you are ready to have this discussion, please get in touch.

General Advice Warning - This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individual needs and you should seek advice from your financial or tax adviser before making any investment decisions.


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