What does Financial Security mean to YOU?

Financial security is defined differently for everybody, and is dependent on YOUR individual circumstances, life experiences and goals. 

For most, the concept of financial security shares some common elements:

• Essential living expenses are covered.
• Discretionary income to maintain a preferred lifestyle. 
• A contingency reserve for surprise life events
• Leaving a legacy to loved ones.

These high-level categories are a great starting point for setting retirement planning goals, no matter what the underlying mix might be for you. These priorities can then be further split into two broad categories – cash-flow goals and asset reserve goals.

Cash-flow goals include living expenses and discretionary income. This can be catered for in a number of ways, including government benefits, annuities or retirement income stream products, in addition to investment portfolio returns.

Asset reserve goals are for planning for contingency and legacies. They require pools of assets that are big and liquid enough to meet what could ultimately be large and infrequent expenses. For example, extraordinary health, custodial care, or unexpected large-scale home repairs.

A number of risk factors that need to be taken into consideration include – market, health, longevity, tax, event and policy risks which can all have an impact on your retirement goals.

Understanding how exposed and sensitive you and your portfolio are to these risks should assist with creating an appropriate asset mix.

Market risks encompass the risk of poor investment returns, the risk of inflation eroding returns as well as the impact of interest rate changes and market volatility. In most cases a certain amount of market risk may be necessary in order to meet return objectives and long-term goals, however it is quite an individual decision as to what level of risk tolerance is built into the asset allocation mix.

How you react during significant market events can impact hugely on the outcomes experienced later and this is just one of the many elements where a good financial adviser could be invaluable to you.

When evaluating and planning for health and longevity risks (the risk of not being able to afford the level of care needed due to deteriorating health and the risk of outliving your financial resources) a number of factors need to be considered.

Examining your personal risk in these areas in detail and considering how to resource it, either through insurance or more contingency, can ensure you are better prepared for the unexpected.

Another key consideration is the risk of changing tax and government policy, including monetary policy. There are complex tax rules to consider with various impacts, particularly in the SMSF space and the risk of further ongoing changes, which  also need to be factored into your decisions.

Once your goals and risks have been mapped out, you need to consider what resources are available to meet your needs, including guaranteed income streams, assets, insurance, home ownership, employment and other financial products

The resulting plan should balance your competing goals, and the risks that you may be susceptible and sensitive to with the right mix of resources and investments. 

Having a tailored plan based on your unique circumstances and the conviction to stick with it over time, adjusting and rebalancing as circumstances and needs change, should set you on the right path to a successful retirement.

At Blue Chip Wealth Management we simplify financial matters, making them easy to understand so that you can be the most comfortable when making financial decisions for your future.

Our experience providing customised financial planning services to Australians and ex-pats around the world for over 30 years makes our knowledge of the industry priceless. We invite you to book an obligation-free call to discuss your needs and help identify how we can add value to your situation.

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