Why it’s just as important to plan the spending of your wealth as the accrual of it

Category: Australia & News & United Kingdom

29 May 2023 was the 70th anniversary of the first successful ascent of Mount Everest by Tensing Norgay and Sir Edmund Hillary.

As experienced mountaineers, both of them would have been aware that the descent following an arduous climb is often just as dangerous and difficult as the journey to the summit, if not more so.

One reason for this is the tendency among novice climbers to assume all the hard work has been done so the journey back down should be straightforward with little planning required.

You may be tempted to make similar assumptions when it comes to planning for your eventual retirement. It’s easy to think that building your wealth during your working life is the difficult part, and that your retirement years will be comparatively straightforward, and your finances will take care of themselves.

But taking this attitude could result in you facing financial problems once you stop work. In reality, seeking expert advice about what you’re planning to do in retirement is essential to ensuring you enjoy a fulfilling and successful retirement.

Read why that’s the case, and some key issues to consider to help make sure your financial journey after retirement is as successful and well-planned as the period while you are still working.

Accumulating wealth up to your retirement

While the journey to conquer a mountain can be split into ascent and descent, the equivalent when it comes to your financial journey is accumulation and decumulation.

During your working life you are accumulating wealth. This will include your pension, other investments and savings, and your residential property.

Your financial plan will include robust strategies to manage the accumulation of all those assets, and an equally effective investment strategy to grow your wealth.

Spending your accumulated wealth in retirement

Once you’re no longer working, you’ll become increasingly dependent on the value of your accumulated assets to provide you with a regular income in retirement, as well as facilitating large one-off purchases.

The process of drawing on your assets in this way is known as “decumulation”, and you need to have an effective plan in place to ensure your wealth lasts for as long as you need it to.

You will need to adjust your plans to provide a sustainable income. This will involve managing your assets and making sure you have an effective investment strategy to continue to grow your wealth, even if your ongoing contributions to savings and investments may have reduced or stopped completely.

Another consideration is your legacy, and how you want to pass on your wealth to your heirs.

It can help to think about your retirement in 3 stages

To help ensure a sustainable income, you first need to understand how much you’ll need to live on.

Rather than consider your retirement as a single entity, it can sometimes help to break it down into three stages:

1.  The period immediately after your retirement

During this time, it’s likely that you’ll be at your most active. You will probably be looking to tick items off your bucket list, which could involve regular overseas travel. As a result, there could be a big call on your accumulated retirement savings as your spending levels might be high – even in comparison to when you were working.

2. A time when you become less active

As you get older, you will still be looking to enjoy a fulfilling lifestyle but may not be quite as active as you were during the early stages of your retirement. This may mean that your outgoings are reduced, but you’ll still want to ensure you have a good quality of life.

3. Your final years

In the final stage of life, it’s possible that you may find your health becoming an issue and your mobility may be reduced. This could result in increased medical costs and potential care requirements.

It’s important to bear in mind that this stage could last several years, and it will become increasingly important to ensure you don’t outlive your wealth.

You need to plan for each stage, rather than leaving anything to chance. You may need to adjust your income and investment strategy, so ongoing advice will be important.

You also need to consider your financial legacy

Another key part of your post-retirement financial planning is your legacy, and ensuring your loved ones will be financially comfortable once you’re no longer around to provide for them.

It’s never easy to have to consider your own death, but it’s important to plan for it. At a very simple level this means ensuring you have a will in place so that your wealth passes to the people you want it to.

It can also help to keep your financial affairs in order, and to arrange an orderly transition of your wealth to your benefactors.

Again, advice is essential as mistakes or oversights could prove costly and may leave your beneficiaries facing an unwelcome Inheritance Tax bill.

An effective income strategy is important

Advice and forward planning can also be all-important when it comes to assessing the assets you have at your disposal and putting together a strategy to manage your income during your retirement years.

Clearly your super or pension fund is likely to provide the bulk of your wealth. But you could have other investments and savings to draw income from and it is always worth speaking to an expert to ensure you have a retirement income strategy that is as tax-efficient as possible.

You should also look to get advice to help you manage the effect of inflation on your wealth, particularly when it comes to ensuring that you are able to draw sufficient income to cover increased living costs.

Your investment journey doesn’t stop when you retire

Even though you’re no longer working or accumulating wealth at the rate you may have done prior to your retirement, you still need to have an effective investment strategy in place.

As with all your planning in retirement, your plans will need to be regularly reviewed and assessed. This can help ensure you don’t outlive your assets once you’re no longer working, especially if you consider that you could live well into your 80s, and – as a result – enjoy a retirement lasting at least two decades.

Expert advice can be invaluable and can make sure your descent is as well-planned and effective as the ascent to retirement.

Get in touch

If you have any queries regarding planning for your retirement, then please get in touch with us.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of ATO and HMRC legislation, which is subject to change.