Retirement Planning

Planning for your retirement is probably one of the most important financial decisions you ever make. Most people equate the purchase of their home as the most important financial decision they make and they then spend 20-30 years making it happen. With retirement planning people seem to take the opposite approach and sit on their hands. At Shartru Wealth Management, we believe in planning for financial security from day one as it is time and the correct strategy that can make all of these financial aspirations

Importantly, all these financial objectives are interrelated and by having the correct strategy we can achieve a lot more than if we take a piece meal approach by trying to put together bits and pieces as you go.

Financial security is having a passive income stream that allows you to fund your lifestyle. In your working days you need to “work” to earn that income where as in retirement you want to sit on the beach, go fishing or be on the golf course to earn that income.

Importantly, this passive income stream needs to increase every year especially if you are going to be retired for 20-30 years otherwise you will become relatively poorer each year.

No different to when we were working; you “need to make more than you spend”.

Remember when petrol was $0.32 per litre , then $0.70 per litre, then $1.00 per litre and is now $1.50 per litre? It’s not just petrol that has increased, most things we buy increase over time with inflation – bread, milk, paddle pops.

Given the recent “correction” in the share market and the inevitable media “scare tactics” that follow, we felt that the graphic illustration below provided an apt reminder of what we are trying to achieve as your financial planners; creating and protecting your wealth.

The graph below shows two options for investing $100,000 in 1993 for 19 years. One option was investing the funds in term deposits and the other investing in the share market.

Initially you would have been receiving approximately $5,000 interest from the term deposits, and slightly less from the shares.

The income generated by each investment diverges with the share income climbing dramatically, as company profits increase, compared to the term deposit whose income remains relatively stable. Over time the capital value of the shares will fluctuate (such as is happening now) while the term deposit remains static.

At the end of 19 years, the value of the share investment is now over $200,000 whereas the term deposit has remained static. But more importantly the income generated from the share investments is now approximately $8,000 per annum whereas the income from the term deposit is only $4,000 per annum, which would not offset the effect of inflation (rising prices) over the 19 years.

Which income stream would YOU prefer? In fact, which income stream do you need?

Over the long term, it is access to this income stream that will provide you with financial security.

If you purchased that income stream in 1982 for $80,000 or $120,000, the income stream would still be the same and would have provided you with an adequate return. The moral of the story is that when assets are attractively priced we don’t need to get too cute in trying to pick highs and lows (which is impossible), as over time the difference becomes negligible.