Investor Education Centre > Income Producing Investments > Build your Retirement Income Portfolio: 5 Important Things to consider
Build your Retirement Income Portfolio: 5 Important Things to Consider
Retirement planning can be a scary thought for many Australians. In fact, more than half of Australians admit that they aren’t currently saving any of their monthly pay cheque for retirement. However, retirement planning doesn’t have to feel like pulling teeth. You can set yourself up for success in retirement by considering these five factors.
1) Balance income with capital appreciation
With interest rates on term deposits and other fixed income investment vehicles currently sitting at near-record lows, investors need to consider what balance to strike between income-generating investments and those focused on driving capital growth.
The reality is that Australians are living longer today than ever before, and retirement time frames of 30 years or more are not as uncommon as they used to be. Considering that your retirement timespan might be as long as your working career, it’s important to find a balance between generating the income you need to survive, and growing your capital to make sure you can continue to enjoy the same standard of living you do today, long into your sunset years.
2) Diversify your income sources
Even within income-generating products, it’s important to diversify your investments in order to minimise the impact that fluctuating interest rates can have on your retirement income.
Consider investing in a combination of bonds, term deposits, and other income-generating investments, rather than putting all your eggs in one basket. Even within the world of bonds, it is important to diversify; bonds mature at different dates. Investing in bonds with a wide variety of maturity dates – a process called “laddering” – is a great way to minimise the impact a sudden change in interest rates can have on your overall investment portfolio.
3) Look for stable income-generating investments
According to a Canadian study, the majority of retirees prefer withdrawing a stable amount to live off of each month, rather than accessing a variable amount that fluctuates with investment performance. With this in mind, it’s preferable to invest at least a percentage of your retirement portfolio in fixed-income vehicles that produce a stable income payout each month, such as bonds and term based deposits.
4) Invest according to your risk appetite
It’s true that retirement periods are longer today than they were 30 years ago, but that doesn’t mean you should just go out and buy the riskiest shares you can find for the sake of generating higher returns. Your risk appetite plays a key role in investment selection.
Are you someone who nearly loses their lunch at the thought of seeing your nest egg decline by 20% in value? Then equity investing may not be for you. You’ll want to reduce the percentage of your portfolio you place in these vehicles, and steer towards fixed income investment. Fixed income offers less volatility at the cost of generally-lower, but more predictable, returns in the long term.
5) Get the most bang for your buck
If you fit the description of a Wholesale Investor, you may qualify for preferential access to investments and interest rates. Generally speaking, someone who has over $500,000 in investable assets is considered a Wholesale Investor in Australia. If this is you, advisory companies can help you ensure your dollars are working as hard as they possibly can for you and your future.
When it comes to retirement planning, the worst thing you can do is stick your head in the sand. With the considerations outlined in this article, you will have answered some of the most important questions when it comes to planning your retirement finances. By balancing your investments, diversifying them according to your risk appetite, and incorporating stable income sources into your portfolio, you’ll be well on your way toward building a comfortable retirement.
This website contains general information only and is not intended to provide any person with financial advice. It does not take into account any person's (or class of persons) investment objectives, financial situation or particular needs, and should not be used as the basis for making investments.