The 5 skills you need to manage your money in retirement

You’ve worked hard to build your savings, so in retirement you’ll want to make sure you’re doing what you can to protect them. A sound investment strategy can make all the difference.

If you are planning to manage your own investments in retirement, you’ll need to know enough about investing to:

1. generate an income and;
2. make sure you’ll have enough to live on now, and in the years to come.

So, what does it take to manage your money in retirement? We’ve asked our very own experts to name the top 5 skills you’ll need:

1. Assess your own risk and tolerance – Investing for retirement comes with risk. That’s because it’s much harder to recover losses when you’re already drawing down on your money and haven’t got time to wait for markets to recover. In retirement, four of the key financial risks you’ll face are:


• Investment risk – the risk that you lose some or all of your savings or that your investments don’t give you the return you expected
• Inflation risk - the risk that the income you earn from your investments is not enough to keep pace with the rising cost of living
• Longevity risk - the risk of outliving your savings because of the two unknowns in retirement, how long you’ll live and how investment markets will perform.
• Sequencing risk – When you are adding or drawing down from your savings such as to fund your lifestyle in retirement you are exposed to sequencing risk. Sequencing risk is the risk that the order and timing of your investment returns is unfavourable, resulting in less money for retirement.

When you take on the task to manage your money in retirement, you’ll need to understand how much risk you’re exposed to – and how much risk you’re comfortable taking. Managing your risk in a way that balances growth with the level of security and stability you need can help you sleep easy at night.



2. Diversify your investments – Spreading your money across different asset classes (such as shares, fixed income and property) and different investments within each asset class is crucial to reduce the risk that your investments lose value at the same time. By diversifying your investments, you’ll increase the chances of a better overall return and therefore a better financial position in retirement. As the value of your assets fluctuate, it’s crucial to re-balance your portfolio regularly to manage your exposure to the different asset classes and keep diversification intact.


3. Monitor the markets – When you’re managing your money in retirement, you’ll need to keep an active eye on movements in the markets to ensure you’re optimising the performance of your investment portfolio. In retirement, "time in the market" and "timing the market" will influence your success


4. Navigate your behavioural bias – As humans, we’re wired to veer on the safe side. A body of research¹ coined the "loss aversion theory" suggests that humans feel twice as much pain from a loss than we feel pleasure from the same amount of gain. When it comes to investing, it can mean we miss out on opportunities for gains by settling for a lower rate of return than we need to. Whilst biases such as these keep us feeling safe in the short term, longer term playing it too safe could see your retirement savings dwindle away.


5. Manage a budget for the next 30 years – Without a regular pay check coming in from work, you’ll need to generate enough income to live on right throughout retirement, whilst making sure you’re spending sensibly. Your outgoings will change as you age and start to spend more on things like healthcare or aged care, and less on travel or eating out for example. Adapting your budget for each stage of retirement and ensuring you’re not spending too much (or too little) will need to be one of your core skills.

Managing your money in retirement can be rewarding, but doing it successfully takes vigilance and skill. If taking on the work isn’t for you, you might like to consider partnering with a Aware financial planner to keep your finances on track.

Whether you want to check in with an expert to confirm your own research or you need help to develop a financial plan from scratch, a Aware financial planner will get to know you, discuss your goals and objectives and tailor the solution to meet your needs. They’ll help you make decisions by giving you the pros and cons of each option as well as saving you time and effort. They can be your personal financial coach throughout retirement, to adapt your plan to expected or unexpected life events.

Aware are retirement planning experts and have helped thousands of SASS members successfully prepare for their retirement. To talk through your personal circumstances and options, book an obligation-free appointment with a Aware planner today.

¹https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/loss-aversion/
Financial planning services are provided by our financial planning business, Aware Financial Services Australia Limited, ABN 86 003 742 756 AFSL No. 238430.
This is general information only and does not take into account your specific objectives, financial situation or needs. Seek professional financial advice, consider your own circumstances and read our product disclosure statement before making a decision about Aware Super. Call us or visit our website for a copy.
Issued by Aware Financial Services Australia Limited ABN 86 003 742 756, AFSL No. 238430. Aware Financial Services Australia Limited is wholly owned by Aware Super ABN 53 226 460 365. The trustee of Aware Super is Aware Super Pty Ltd ABN 11 118 202 672, AFSL 293340.