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Financial Advice

Private Net Wealth

This program is specifically tailored for your pre and post retirement needs.

Pre-retirees – How much do I need?

The whole concept of retirement can be very confronting. The job you do plays a large part in your perception of personal value and leaving it behind is no small step.

Additionally, when the first decision is usually – ‘When will I retire?’ – it feels like you are under pressure to draw a line in the sand.

At RFS we recognise that a lot of people like what they do and they aren’t sure when they want to stop working.  However, they recognise that they will have to stop working at some stage.

We believe that you need to work towards ‘Making Work Optional’:

  • If one day you decide you don’t like work anymore or a health or family issue changes your plans you need to be ready to make that decision and know you can make that decision without fear… or with as little fear as possible.
  • To understand what making work optional means, you have to be able to picture what life after retirement looks like.
  • What are the things on your life list that you have been putting off until you retire?
  • Where will you live?
  • What places do you want to visit or revisit?
  • What would you like to learn?
  • What events would you love to attend?

You will have your normal income costs like rates, telephone, electricity and health but you need to understand your lifestyle needs. Armed with this, we can help you determine how much income you will need, especially as you start what we believe can be a wonderful time in your life.

When we know the income needs, then we can build a plan;

  • How much capital is required to generate your desired lifestyle income?
  • What assets have you already accumulated and what income can they produce?
  • What is the ‘asset gap’ and how can we close it?
    (It is also prudent to allow for ‘surprises’ by exceeding the gap if possible.)
  • What milestones do we need to achieve to check the plan is on track.
  • Implement and then regularly review.

Retirement – How do I do it?

Most of our clients only get to retire once in their life so it is essential to get this right. 

Poor decisions on structure and strategy can have a very significant impact on your income potential and access to capital. Expert Advice is crucial through this transition.

We have been through the retirement process with our clients fairly regularly over the years (sometimes almost weekly) so this is not a new experience to us and we have seen how good decisions can make a very large difference to your lifestyle.

Your plan’s foundations

Income:

This is the primary concern in retirement and with some forward planning this is the one that should be easiest to manage. You need to lock in the income you need to live and this needs to be available to you no matter what happens with financial markets.

Short term money is needed to provide the income you will want and need monthly.  We structure a solution that allows you to hold enough cash and liquid assets such as term deposits to sustain you through market cycles. This then allows you to also hold longer term more volatile growth assets such as Shares and Property to benefit from the increased returns they offer. You need the uplift to maintain the purchasing power of your money and essentially inflation proof your retirement but you do not want to be forced to sell growth assets to meet income needs in a negative market.  We will work with you to manage these risks and ensure you are comfortable with our recommendations.

Individual Investment Selections:

Private Net Wealth also allows us to incorporate individual investment selection within a client specific asset allocation.

Most clients come to us with existing investments and quite often have had good experiences with those investments. Examples are investment properties, share portfolios and collectibles. This program allows for the existing assets to be incorporated within the larger plan and we assign risk and return characteristics to those assets.  We all fall in love with strongly performing assets but everything has a cycle. Leaving a large portion of your retirement capital exposed to the performance of a small number of shares or a property will need to be considered in the context of what we are trying to achieve.

Case Study – Private net wealth at work

Consider the following scenario which for a lot of Australian’s is how they are structured when we first meet them. 

In this example we use a portfolio of $500,000 to invest with an annual income need of $60,000.

  • Option 1.
  • Option 2.

Without RFS Advice the client has chosen a good quality low cost investment option in a reputable organisation. The investment option is a balanced fund which means they are invested across a range of assets including cash and fixed interest as well as property, Australian and international shares. In this option all of the client’s income is paid from that investment option.

An RFS client in Private Net Wealth has been advised to invest in several asset hubs including cash and term deposits, some diversified options and a select Australian and International share exposure. In this structure we can select where in the portfolio they want to draw their income from and direct all income from the growth investments to be paid into their cash account.

Let’s consider the impact of a share market correction of -20% in one year and in the following year a recovery of +20%. How would these portfolios perform at the end of this period? (Assuming 4% income is generated internally in the portfolio, client withdraws $5,000 per month and cash returns are 2%.)

In Option 1, the non-advised client will have assets sold to meet their ongoing cashflow requirements which is impacted by what we call ‘sequencing risk’.  Assets are sold at the bottom of the market – locking in the losses at that time.

In Option 2, an RFS advised client will have cash buffers and in many cases, assets with built in downside protection, that will reduce the need to sell assets in a negative cycle. This can significantly impact the long term decay of capital caused by negative investment cycles.

In the example above the market drops suddenly – as they do in a correction – and stays down for twelve months. The fund then grows by 20% in the second year.

  • Option 1.
  • Option 2.

Investments have dropped to $400,000 and income needs are met by selling units in the balanced option. After 12 months the balance could be as low as $356,000. The balance then grows in a linear fashion over the next twelve months by 20% (Linear growth would be unusual but for the purpose of the exercise can demonstrate the point). After income payments the capital would have recovered to approximately $384,434.

An RFS Advice advised client would have their income insulated from the impacts of market movement. This would reduce the capital exposed to growth assets so in bull markets may underperform however, retirement is not the time to gamble with your lifestyle.
With the same scenario, the RFS Advice strategy could generate a capital value of around $390,100, a positive difference of over $5,758 and this would be only one part of what we would do for you.

In your retirement, there will likely be a number of market cycles and as we have seen recently, these cycles can continue for extended periods. Volatile conditions can easily lead to an underperformance like this having a significant impact on your retirement capital and subsequently your retirement income.

This is a simple example but by actively managing cashflow and asset allocation you can enjoy the long run average return of growth assets and still maintain your income and standard of living by not selling growth assets in negative markets.

In retirement, capital preservation is ‘King’ but avoiding the impacts of inflation on your purchasing power is not far behind.

Private Net Wealth delivers both!

Make an enquiry today

You can arrange an appointment with RFS Advice today by filling out the form below.


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