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From their inception, SMSFs have always attracted more than their fair share of criticism. Now it’s an ageing membership that’s being used to restrict their numbers.
Retirement advice that’s set in rock
When Larrry Fink speaks, people listen. The co-founder, chairman and CEO of BlackRock, the financial services behemoth with more than US$10 trillion ($A15.1 trillion) in assets under management, Fink recently used his annual letter to investors to voice some insights on the evolving challenges of retirement.
Arguing the challenges today are even more daunting compared with three decades ago, he identified five specific issues relevant to retirees and practical advice on how to navigate them. Although primarily aimed at the US market, much of what he had to say is germane to Australian retirees.
Embracing longevity with strategic planning: Advancements in healthcare and safety have extended our lifespans, presenting the dual-edged sword of longevity risk – the risk of outliving your financial resources. To mitigate this, proactive steps are essential. Consider saving diligently during your working years, postponing Social Security benefits, exploring part-time work, or consulting in retirement, investing in annuities, and adopting flexible withdrawal strategies. Importantly, maintaining a healthy lifestyle can reduce potential medical expenses.
Rethinking the retirement age: Fink critiques the traditional retirement age of 65, arguing it’s a relic of a bygone era. Proposals to extend the retirement age aim to address the financial viability of Social Security and encourage cognitive engagement. Continuing to work beyond 65, either full-time or through volunteer work, can bolster financial and mental health. [In Australia, the data shows the retirement age increased significantly from 1990 to 2010 (especially for women) but has since plateaued around 64 for women and 65 for men.]
Simplifying retirement savings: Fink is a strong advocate for the widespread adoption of automatic enrolment in retirement savings plans, a move that benefits employees by defaulting them into saving. Whether it’s through employer-sponsored plans or individual arrangements such as IRAs (Individual Retirement Accounts) or Roth IRAs (taxes are paid on deposits but all future withdrawals are tax free), making savings automatic can significantly ease the retirement preparation process. Even for retirees, automating withdrawals, such as Required Minimum Distributions (RMDs), ensures compliance and financial stability.
Intelligent spending in retirement: The concept of “safe withdrawal rates” might seem arcane, but it’s pivotal to ensuring your savings last throughout retirement. Adhering to a sustainable withdrawal strategy, adjusting spending based on market conditions, and diversifying income sources can help mitigate longevity risk. The less you depend on withdrawing from your investments for regular expenses, the more secure your retirement will be.
Overcoming investment fear: Fear is a formidable barrier to investing for the future. Fink addresses this by highlighting the detrimental effect of “doom spending”, a trend where economic and global uncertainties lead to reckless financial decisions. Adopting a balanced approach to investing, including setting aside a “safety valve” portion of your savings, can provide peace of mind while still encouraging growth.
Conclusion: Retirement today, as outlined by Fink, demands a more nuanced approach than in the past. By understanding and addressing the challenges of longevity, retirement age, savings automation, spending wisely, and overcoming fear, retirees can navigate the complexities of modern retirement. It’s about making informed decisions that align with evolving circumstances, ensuring a secure and fulfilling retirement.
