It’s generally better to save for your retirement as early as you get your first job in your early 20s. However, it’s understandable that most Millennials have to prioritise several financial responsibilities first, like paying for a mortgage. Because of this, some people tend to start later at 40 before preparing for their retirement.
The prioritisation of capital investments
Millennials now are facing an economic crisis that even the most recent Global Financial Crisis has difficulty competing with. The less than appealing developments on COVID-19 make it a dangerous time for soon-to-be retirees in the next few years. With the economy at an unstable state still, many liquid assets and shares prove to be unprofitable at the moment. Only time will tell if markets will recover in time for retirees to sell their shares at a favourable price.
The importance of investing in advance
Older individuals need to prepare themselves for the consequences of saving at an older age. The first is obviously time. Younger people have more time to expand their growth assets like stocks and shares. This allows them to have a longer time building their portfolio before reaping the benefits of their retirement nest egg. This gives these would-be retirees plenty of time to recover value while maintaining their growth path.
Unfortunately, people closer to retirement age have fewer opportunities to risk their financial choices. This sequencing risk means you have very little time to consider options, or waiting for market trends to be more profitable. Because of this, you will have fewer chances to cash in your super and retirement savings without assessing the full range of investment options available. Cashing out at the wrong time can destroy the burgeoning potential of your investment. Nevertheless, having too little time is a capital you can no longer remedy.
The value of incremental investments over time
To mitigate the limitations of sequencing risk, your options are left to investing in low volatile assets and traditionally government bonds. These investments have low interest rates and the benefit of being highly liquid. This means they’re easily transferable into capital whenever you need them. As a prospective retiree, you should only cash in your bonds to utilise cash, while you can passively hold these equities until markets recover. Although Australian equities have been languishing ever since the Global Financial Crisis, there’s plenty of growth through other assets like International shares, especially in the US market.
When investing your capital, it’s best to trust the ‘100 rule’, which states that you should only allocate your portfolio’s growth assets based on your age subtracted from 100. For example, a 40-year old should be savvy enough to maintain 60& of their investment portfolio in equities. After every passing year, you’ll gradually put less in these liquid bonds. This controls the amount you place in investments to prevent the risk of investing in volatile assets. You must be more protective of your income as you reach your retirement age. Remember to hold your equities until the right time presents itself to cash out, a few years earlier or after your retirement.
Conclusion
Remember that it’s never too late to prepare for your retirement. However, it would be best to consider the increasing difficulties that come with starting at a later age. If you think you’re unable to overcome these obstacles to investing yourself, you can consult with a financial firm to give you expert advice on what to do next. This allows you to receive a detailed and comprehensive plan for preparing your financials and securing your future.
If you’re looking for the best financial advisors on the Gold Coast, we’re the right company to call. At New Wave Advice, we provide estate planning, superannuation advice, retirement planning and more! Call us for a free consultation at 07-5504-1999.
