“The second bucket says, if that’s the minimum I could tolerate, how much money do I need for the sort of lifestyle I desire and strive to achieve in retirement?
If you’ve got enough money to go beyond that, people can start to plan to leave some money behind, for their children or grandchildren, or make a bequest to a charity. [The final bucket] is for the super rich or super frugal who basically have so much money they couldn’t possibly spend it – people like Warren Buffett.”
Categorising your money in this way means you can take different approaches to each wealth bucket, Schubert says.
“Once you move beyond [the essentials bucket] and you’re into funding your preferred lifestyle you can be a bit more flexible,” he says.
“If you live a long time and the money starts to run out, you might have to tighten the belt a bit, but at least you’re doing that from a base where you’re enjoying the lifestyle you aspire to, rather than down there at the very frugal stage.”
In times like this, it’s important for planners with post-retirement clients to reassess clients’ investment options within their superannuation funds, and consider whether the particular strategy remains appropriate.
Crissy DeManuele, technical services manager at Suncorp, says planners should also look at how they can help their clients with potentially gaining more access to Centrelink benefits.
“For example, they may be eligible for an Age Pension that they previously weren’t eligible for due to their level of income or assets,” she says.
“That not only provides them with some sort of income, it may also give them access to conces- sion cards and other benefits that come along with receiving the Age Pension.”
Where people’s superannuation balance has de- clined, the tax-free components may have increased, DeManuele says.
“Moving the money into an allocated pension crystallises the tax-free component and that way, any future earnings in the allocated pension will be added back to the tax-free component in the proportion it currently holds, whereas if it’s in accumulation it will potentially add back to the taxable component,” she says.
Lifetime and fixed-term annuities have traditionally been viewed as inflexible by financial planners, because the money is locked away, the rate of return is low and when the client dies, the full capital is not necessarily returned to their beneficiaries.
However, they do offer certainty and a guaranteed rate of return, which in this environment is looking increasingly attractive for retirees.
“Now that post-retirees and pre-retirees have had a bit of a shock and they’ve seen their balances decline, they perhaps will be looking for more capital guaranteed options and you’ll probably find things like lifetime annuities and fixed-term annui- ties may become a bit more popular,” DeManuele says.
“In times like this where allocated pension balances and super balances are declining, if you have a lifetime annuity or fixed-term annuity you’re still getting your fixed rate of return regardless of what’s going on in the economy.”
