We believe that retirement is one of the “big rocks” in your life like getting married or having children. These are life changing events that require an objective and professional assessment of what is in your best interests.
The focus for many people should not be on the products used to provide for our retirement, but on the things that matter to you, like how much income you need and the things that are within your control, like how much risk you take.
We believe that
maintaining your Income in retirement is such an important
issue for so many people that it is surprising that many people's
focus has actually been on maintaining their capital as a priority
often at the expense of their own quality of life.
Falling interest rates over the last 20 years or so has meant that the level of income that can be created from a given sum of capital has declined year on year.
Graph shows the average bank base rate in Ireland since the early 1990s
A second significant risk for those in retirement is longevity risk.
In numerous studies, retirees have been shown to underestimate their life expectancy and this should be taken into account when considering your retirement options.
The investment decisions that we make are always about making trade-offs and the notion that capital security is always the most significant priority for all retirees can lead to catastrophic outcomes in terms of both the income available during retirement and also the prospective legacies for beneficiaries.
The opportunity cost is the return you should be earning from putting your money to work in global capital markets as compensation for investment risks.
The mistake many investors make is to assume that if they are not invested in cash, then you are invested in the stock market with all the attendant risks and concerns.
In reality investing is all about having an appropriate overall investment approach which meets your need, willingness and capacity to invest.
We call the process “asset allocation” but really it just means dividing up your savings between lower risk investments and blending these with riskier investments.
Although we all know that we should not "put all our eggs in one basket",
in practice many investors fail to diversify their investments sufficiently.
One of the reasons for this is that, often, the way to accumulate significant wealth, namely concentrated risky and possibly even leveraged positions for example in property, is not the way to preserve wealth.
Coming up to retirement then, many investors will tend to have significant allocations of aspirational capital such as investment properties.
Equally, during the accumulation phase of our lives when we are saving, one of our biggest assets is in our personal or human capital that we generate through our salary. As we get older, we save some of our income and we accumulate personal assets and financial assets.
The minimum level of income acceptable to any individual to meet their basic needs.
The desired level of income we would like in order to maintain our quality of lifestyle.
Your potential desire to use your wealth to make a meaningful difference either through a legacy to your family or through philanthropy and charitable bequests.
A desire on the part of some to continue to accumulate wealth rather than focus on wealth preservation in retirement.
We believe that these concepts are more meaningful to investors than the typical financial services industry jargon and allow us to ensure that those coming up to retirement are able to ensure that their preferences in each of these four areas can be matched to the financial planning solutions that best meet their requirements.
Many of the investment products recommended in Ireland today are focused on capital preservation and are offered on the basis of Financial Brokers being remunerated by commission payments. This creates a potential conflict of interest, between what is best for you and the desire on the part of the broker to earn the highest commission.
The decisions are too important to be subject to the insidious conflicts of interest presented by the commission-based sales model.
When planning for your retirement, it is important to be aware of both the costs associated with any investment solutions and any potential conflicts of interest.
Download our full length guide: Preparing for retirement for detailed insight on how to plan for retirement, including information on annuities, portfolio construction and much more.Download Now