Financial Planning and Wealth Creation
Consider these statistics:
The number of Australians aged over 65 is projected to more than double by 2054-55, with 1 in 1,000 people projected to be aged over 100. In 1975, this was 1 in 10,000.
Australians will live longer and continue to have one of the longest life expectancies in the world. By 2054-55, life expectancy at birth is projected to be 95.1 years for men and 96.6 years for women, compared with 91.5 and 93.6 years in 2015.
The average life expectancy for a person born in 1800 was 55, whereas a person born in 2000 could potentially live to 130.
While estimates vary, it is generally considered that $1 million is the minimum required to lead a comfortable retirement.
Half of the population now believes they will be “self-funded” retirees with no or minimal reliance on the government pension. Historically the actual ratio has been 5% for “self-funded” retirees.
The combination of an ageing “baby-boomer” population and increased longevity will create a funding nightmare for the government, as evidenced by the push to compulsory superannuation contributions over recent years.
The maximum aged pension for a couple is $36,301 per year (2019 rates).
The primary concern for pending retirees is finance – can they support the lifestyle they are expecting? If you live for 20 – 30 years into retirement, then there should be a high expectation that this time will be spent productively enjoying life. Whether that includes travel, hobbies, sport, or family and provided good health permits, then spending these years watching every penny is not a justifiable reward for a successful working life.
“Who wants to be a burden on family in their later years?”
Superannuation is the primary retirement funding tool for the vast majority of Australians, yet the average balance of these accounts at the time of retirement is only $200,000 for men and $100,000 for women, which places reliance on the aged pension.
Financial planning is the key, unfortunately for most people the only time they visit a Financial Planner - if at all - is immediately prior to retirement. While useful, this is at solution stage and not design stage.
The best time to see a financial planner is as soon as possible, no matter what stage in life you are at. Proper financial planning covers more than merely investment advise.
A trusted planner will consider your:
Short, medium & longer-term objectives.
And, formalise a strategy to achieve these.
The tailored strategy may include a number of wealth creation tools such as:
While retirement planning will inevitably feature, depending on your stage in life, wealth creation may be the primary focus. After all, superannuation shouldn’t be the only investment available at retirement.
How do you pick a good financial planner?
A good financial planner will answer the tough questions and create a long-term relationship that can be relied on to perform regular reviews and, depending on your personal preferences, can even become a financial manager.
So the decision should be taken seriously. The best place to start is referrals. Use your network to identify who has a good planner and research the type of advice they provide to ensure it suits your preferences.
Your nem partner may have some useful contacts in this regard. If you don’t have any strong referral sources then use the industry sources such as:
Financial Planning Association of Australia www.fpa.com.au
Association of Financial Advisors https://www.afa.asn.au
Independent Financial Advisors Association of Australia www.ifaaa.com.au
The Association of Independently Owned Financial Professionals www.aiofp.net.au
What should you be looking for in a financial planner?
Again, this will depend on your personal circumstances, however the following is a brief list of the key considerations:
Empathy - an ability to really understand your unique needs and to deliver according to them.
Relationship - this must be someone you are comfortable with and trust.
Risk Tolerance - having a sound understanding of how this applies to you and your financial needs.
Thoroughness - the entire process should be comprehensive not perfunctory.
Professional - good planners will be clear about charging rates, discretion, communication and qualifications. They will be licensed and openly provide credentials as well as provide you with an Advisory Services Guide.
Also, pay careful attention to your financial planner’s stated fee structure. The financial planning industry has been increasingly moving towards a “fee for service” model rather than the historic commission-based model where planners were paid by both the investment house (for funds deposited) and the client (based on a set percentage of the investment portfolio).
Understanding the fee structure that’s applied to your portfolio – and more importantly, what you will receive in exchange for the fee – is crucial to making a wise selection in your financial planner.
While this may appear onerous, the time spent in identifying the right financial planner and working with them to structure your financial future could well be the catalyst that ensures your stress-free retirement.
This article is based on research and opinion available in the public domain.