Thoughts on Personal Finances for People Planning to Retire in an Uncertain World

With the second Trump presidency almost a year in, it remains a really challenging time to try and makes sense of what the future holds politically, economically and financially.
Earlier this year, Milliman, a global actuarial consultant, provided the results of a survey of 5,000 financial advisers seeking to find out their top 12 concerns. Here they are presented with the largest font being the most frequent responses.

Geopolitical risk is number one, reflecting the upending of the old world order that has been in place since the end of WWII. The United States, the major force behind and beneficiary of the defence alliances and trade regimes of the last 80 years, has now implemented an America First agenda, taking a much more transactional view of tariff and defence arrangements with both friends and foes.

Amidst this global trade realignment, we also have a hot war in Ukraine, and in Gaza until the recent peace deal, alongside an arms build-up in our own Asian region.

The collection of economic risks – including inflation, GDP growth and government debt – are all interconnected and directly affect the market pricing of bonds, shares, property, commodities and currencies.

Globally, we are also coming to grips with rapid technological change brought about by artificial intelligence. In Australia, we face spiralling government debt and a generation struggling with home ownership, largely the result of years of policy failure across multiple levels of government.

The current volume of change and uncertainty, and the further disruption still to come, is hard to absorb. It is even more difficult to know to whom or what to pay attention, to separate truth from misinformation or scams, and to match whatever understanding we gain with a thoughtful response. We are now firmly in the inescapable world of ‘VUCA’

Volatility | Uncertainty | Change | Ambiguity

In such times, especially when we are bombarded daily, if not hourly, by news flow and social-media distractions competing for our attention, I suggest it is very helpful to cut through the noise and develop and rely on a sound personal-finance decision-making framework.

How to Cut Through the Noise

Here are the top four areas of personal finance that, in my experience, can really help people cut through the noise, navigate these uncertain times, and track toward a successful retirement.

Understand and quantify your goals

Goals are the things you want to do or achieve in the future that cost money.

Goals are not dreams or wishes, as inspiring as those may be, but rather your
considered intentions to spend a specific amount of money on particular things
at particular times in the future.

For example:

• Renovate your home, costing about $80,000 in three years’ time.
• Retire at age 62 with an after-tax income of $120,000 p.a. for the first ten years and $100,000 p.a. thereafter.
• Help your two children with home deposits of $100,000 each in four and six years.
• Ensure, on death, that assets are passed to beneficiaries in the way and in the amounts intended.

Use optimal structures and strategies

Structure is the combination of the people and entities you control that legally own your money, while Strategy is how you allocate your cash and cash flow to these people or entities.

Examples of structures include holding assets such as cash, shares, or property in your personal name, your spouse’s name, joint names, or as tenants in common superannuation – industry funds, wrap accounts, or SMSFs investment bonds family trusts, unit trusts, and companies loan and offset accounts that complement these holding structures

Structure is very important because smart ways to hold your wealth can be very advantageous for control, taxation, Centrelink, asset protection, and estate planning.

Strategies are then about allocating the money you have and the money you will have (earnings, investment income, inheritances) to the right mix of structures and the investments you choose to hold in those structures.

Some common and very effective strategies include:

• Holding surplus cash in a loan offset account or a lower income spouse’s name to reduce tax on interest.
• Paying down principal on non-deductible home loan debt while not paying off deductible debt, say for an investment property, while you have a high tax rate.
• Making personal superannuation contributions up to the concessional and non-concessional caps with the ability to receive a spouse contribution tax rebate or the government co-contribution if eligible.
• Allocating long-term investment capital to a family trust where it can be managed to benefit the whole family.

Invest to meet your goals and match your preferences

Investing is about buying and managing assets to provide you with income (interest, rent, dividends, managed fund distributions) and/or capital appreciation (e.g. from bonds, shares, property, commodities, currency, collectibles) or both.

The mix of investments is your portfolio and there is no one true way to build and maintain wealth. Some people prefer property, some shares, while others focus on superannuation (which is really just a tax structure for holding assets).

We read in the news about the few who are remarkably successful in one or more of the asset classes listed above while we hear less about those who attempt to replicate that success but fail or have sub-optimal results. Much depends on hands-on commitment, perseverance, timing and perhaps a little bit of luck.

The principles of successful investing for most are to:

• Spend less than you earn so that you can invest for your future.
• Buy high-quality assets that provide income and long-term capital growth.
• Prudently use lending to increase your market position and then reduce lending as you prepare for or enter retirement.
• Diversify the types of assets you own – don’t put all your eggs in the one basket.
• Hold sufficient cash, or access to cash, so that you are prepared for contingencies and are never a forced seller of good assets at poor prices.
• Hold your assets in the right structure for control, to manage and reduce taxation, and for legal purpose.

Cover risks to your income and future wealth with appropriate life insurance

Personal life insurance is essential to cover the risks associated with loss of income (for yourself and your family as a whole) in the event of serious illness, injury or death.

If we lose our ability to earn an income, or we must divert significant financial resources to meet the medical/ health needs of ourselves or a family member, we are at high risk of derailing our whole financial and lifestyle strategy.

Life insurance costs money. Those who are lucky enough never to make a claim wonder why they bothered; those who make a claim thank the stars for having the cover in place when they need it.

To ensure you achieve your goals, you’ll want appropriate life-insurance cover at least until your asset position means you need less or no insurance.

To keep focused on your retirement destination and not be distracted by the noise, you should:

1. Understand and quantify your goals;
2. Use optimal structures and strategies that best suit you;
3. Invest to meet your goals and match your preferences; and
4. Have necessary life insurance in place.

Doesn’t that sound like having a PLAN?

How Crew Wealth Can Help You

The very first thing we discuss with any prospective client is whether we can put you in a better financial position by providing you with personal advice.

We can evaluate this by having an initial meeting with you at no charge to see how you are currently positioned, what are your goals and preferences, and what opportunity we can see to improve your situation and meet your goals – it’s a powerful, complimentary Financial Health Check that allows you to ask questions, gain clarity and put Crew Wealth and you in a position to decide whether we can work together.

If yes, then we can offer you and provide a fee proposal for our services that include:

Strategy Advice (one off advice)

Focuses on recommending optimal financial strategies and building a personal financial model for you to compare strategy options and make good decisions.

Investment Advice (one off advice)

Specific tax-effective investment portfolio recommendations to meet your goals and preferences. We advise on all aspects of investment selection, planning and management with a focus on reducing tax and gaining optimal outcomes for our clients.

We specialise in integrating superannuation portfolios (including Defined Benefits) with non-super portfolios.

Insurance Advice (one off advice)

An initial analysis of your life insurance needs and any gaps you may have in coverage, or whether you can afford to reduce or drop certain cover. We can refer you to our panel of specialist insurance advisers for specific insurance product recommendations.

Ongoing Advice

Where you elect to receive a high level of ongoing advice and interaction to build and manage your wealth. Many clients who are transitioning to retirement select this service after seeing the value of our strategy and investment advice.

With professional guidance, you can put a plan in place that helps you enjoy more in the
present, while protecting your future – and your family’s.

Ready to chart your course into retirement with confidence?

Book your complimentary strategy session with Crew Wealth today.

Richard Marsden

Director, and Principal Advisor (Authorised Representative No. 1236847), Marsden Wealth Advisers Pty Ltd. Corporate Authorised Representative Vo. 1314067 of Alliance Wealth AFSL no. 449221 (www.centrepointalliance.com.au)

Disclaimer: this information is general advice. We have not considered your objectives, personal or financial circumstances. You should consider the appropriateness of the advice for your circumstances before making any decision. You should obtain and consider the relevant product disclosure statement and seek the assistance of an authorised financial advisor before making any decision regarding any products or strategies mentioned in this communication.

While every effort has been made to ensure that the accuracy of the information, it is not guaranteed. It is based on our understanding of regulations and laws as at the publication date. As these are subject to change you should talk to a professional advisor for the most up-to-date information.