Financial planning is really about… the old

Most Australians over age 65 need the old age pension to get by.

It follows that most clients approaching age 65 will not have huge financial resources. You will not be dealing with an abundance. You will be managing a scarcity. That’s a demographic fact of economic life.

The best advice to an older client approaching retirement can often be “don’t do it”.

That is, don’t retire. Working a few more years, with a heavy emphasis on extra super, can make a huge difference to the economics of retirement. Three forces can be identified. These are:

  1. adding to the stock of capital, probably through extra super contributions;
  2. deferring the drawdown of capital, compared to age peers; and
  3. reducing the number of retirement years.

To take an over-simplified example, if Joan is age 60, probably going to live to be 90, has a home worth $500,000 and super worth $500,000, then she has about $33,333 a year of capital. If Joan works another ten years, and her home is worth $1,000,000 and her super is worth $1,000,000, Joan now has $100,000 a year of capital. That’s a huge increase in comfort, security and happiness.

Workplace health management can be very important. Don’t hesitate to include a paragraph like this in your statement of advice:

Health management

Your most valuable asset is your health. It will determine both your earnings longevity and your quality of life. Take care of it. See a GP and ask for a health plan, covering diet, exercise, and medications. And follow it. Your ability to earn an income from work over the next ten years has a huge impact on the quality of your subsequent retirement.

There is a growing body of evidence that shows older people who stay working, particular in a space and at a pace they enjoy and in social work environments, are happier and healthier and live longer than those who don’t.

For older clients the choice of super fund is more sensitive, because they tend to have more than younger clients. One big mistake is going conservative too young. Longevity risk is real. Many will outlive their super. It makes sense to stay growth orientated as long as possible.

Think also about whether large life insurance premiums need to be paid once the children are off the parents’ hands. The money could often be better-expended paying extra super contributions.

The Dover Group