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How to maintain your lifestyle in retirement


There is a lot to consider when it comes to calculating how much you’ll need to cover your lifestyle in retirement.

We know that a big concern among SMSF investors is whether they'll be able to maintain their lifestyle in retirement. In this article, Jeff Rogers, Chief Investment Officer, ipac provides insight into how to build an investment portfolio that aims to address lifestyle goals.

3 things to note when building an investment strategy

There are a number of things to consider when building an investment portfolio that aims to address lifestyle goals in retirement:

It’s personal: wants are not homogenous

Everyone’s lifestyle and personal circumstances and expectations are different. As such, what to account for will vary across individuals. The idea is to have some money set aside for discretionary wants that are not compulsory, but can make retirement that much more enjoyable. If you’re still working, you may have more flexibility to make changes and more opportunity to boost your retirement savings.

Account for your spending patterns changing over time

Lifestyle needs and wants will change over time. In fact, we know that spending patterns in retirement tend to follow a U-shaped trend, whereby retirees typically enter their retirement years spending more on their discretionary wants such as leisure activities and travel. Over time, this discretionary spending follows a downward trend as retirees ease into a more modest lifestyle that centres on covering life’s everyday needs. Retirees can then anticipate that their need for income will ramp up to deal with higher healthcare costs in late retirement.

Look for capital growth, with smoother returns

Investment strategies designed to cover lifestyle wants in retirement will often aim to deliver growth with smoother returns over the long-term. In this context, diversified funds that target a more certain investment outcome may be of interest. That’s because these funds provide investors with the potential for stable, risk-adjusted returns above above inflation through investment in a portfolio of assets diversified across asset classes (such as shares, listed property, commodities, fixed income, credit and cash), sectors and geographies. Whether the fund is actively managed and able to rebalance its asset allocation mix within broad ranges to maintain a contemporary portfolio relevant to market conditions should also be a key consideration.

Final thoughts

Going into retirement, income from wages, salaries and business activities tends to be replaced by income from superannuation, investments and/or government pensions. There is a lot to consider when it comes to calculating how much you’ll need to cover your lifestyle in retirement. It’s a comprehensive process where individual circumstances and lifestyle expectations play a significant role.

The state of markets and your prevailing health will also weigh on what a realistic and comfortable level of retirement income looks like for you. Investment solutions for lifestyle or discretionary spending should aim to grow capital steadily over time, with a lower probability of a major peak-to-trough decline in value.

About the author
Jeff Rogers joined AMP Capital in 2011 from ipac Securities, following its acquisition by AMP Ltd. He has over 27 years of investment management experience. Jeff holds a Bachelor of Science (Honours) from the University of Melbourne.
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