Today's edition of The Australian's Wealth lift out has its focus story about retiring in style.  No matter where you are in life's journey, I am confident that the concept of retiring in style is appealing.  So how best do we prepare for this time of our lives?

When planning for retirement I believe the first key is to try to identify what level of income / expenditure will be required in retirement.  No easy task!!  A useful starting point is to check out the Association of Superannuation Funds of Australia (ASFA) website.  ASFA provides some really useful guides to consider.  They, together with Westpac, produce a report on retirement living costs.  In that report ASFA break down budgets for various households (single & couple) and living standards (modest & comfortable).  The latest report, up until the end of the September quarter 2007, provides the following summary of these budgets (assuming home ownership):

This is a very useful guide, but only a guide.  We all have different approaches to expenditure and someone planning for retirement should take this into consideration before identifying a target level of income.  However, the table above provides a good starting point.

After determining the required level of income, the next step is to determine what level of assets will comfortably provide that level of income.  Our approach, as set out in Scott Francis' Eureka Report article - Tap your super, but how much? - is that assets, if effectively invested in retirement, can be drawn down at a rate of up to 5.5%.  As an example, if you thought you would require $55,000 per annum in retirement you would need financial assets of at least $1 million in today's dollars (i.e. taking out the impact of inflation between now and retirement) to be able to produce this level of income.  Our approach looks to keep retirees from selling down assets but rather living off the income provided by assets.  This is particularly important during times like now where volatile asset prices such as Australian shares, international shares and property (even direct property in the opinion of some) are falling.  In retirement you do not want to be forced to have to sell assets at such times in order to produce the cash you need to live.

Once the level of financial or investment assets needed has been determined, the next step is to determine how best to get to that magical figure.  Strategies will be heavily dependant on your current stage of life and circumstances.  This is where a financial adviser should really earn their keep by ensuring that their clients squeeze every last risk-free dollar out of their situation.

The next step is to look at the best set of investments to achieve the goals that have been set while taking on as little risk as possible to reach the intended goals.  We have a particular approach to this stage set out in our investment philosophy.  Check out our Building Portfolios page for more details.  Just as importantly though, a financial adviser will work to ensure that their clients don't suffer severe "hiccups" along the way by investing in products that may destroy wealth and in doing so destroy that "stylish" retirement.

Unfortunately, you can't sit back just yet and start dreaming of retirement, the strategies need to be regularly revisited and updated to reflect changing circumstances.  Plus you need to keep from "mucking" up the strategy along the way.

A great financial adviser will be able to help put all these pieces together plus provide ongoing support and discipline to keep to the plan.  If you would like more details or just want to discuss your planning for retirement please do not hesitate to get in contact - scottk@acleardirection.com.au

Regards,

Scott Keefer