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The inventor of weather forecasting, Admiral Robert FitzRoy, was motivated by the desire to stop shipwrecks off the coast of Britain.  He established the first weather bureau in 1854….but was mocked for his forecasts and eventually took his own life in the 1860s.  Today, we’re all grateful for the improvements in weather predictions and rarely go a day without looking at a forecast.

In our view, retirees need to avoid their own “shipwrecks” on the shoals of retirement.  They need forecasts to work out how much they can spend.  And they need to get them throughout retirement so they can make adjustments as things change.

Forecasting retirement is pretty tricky.  How much can I spend?  And how long will my money last? They’re the two most common questions.

So what is the answer?

But the answers depend on a number of uncertain factors:  How long will I live?  What will I earn on my investments?  And how much will the Age Pension account for?  To which most people would throw up their hands and say “who knows?”

Without good forecasts available to them, most Australian retirees end up dying with significant assets still intact – and not because they planned to leave it to their heirs (although that’s important to a minority).  Instead, they underspent because they just didn’t know they could afford to spend more.  That was a major finding of the Retirement Income Review just concluded by the Federal Government.

There are some basic tools out there to help.  ASIC’s MoneySmart calculator lets you calculate retirement income.  But a big problem with it is that it assumes a certain rate of return on investments that’s earned every year.  Well, financial markets just don’t work like that; they go up and down.  You need more sophisticated tools that can show you the impact of uncertain market outlooks.  Show what might happen, instead of pretending we know what will happen.

Our Plans

Retirement Essentials is working on the next generation of tools to help you understand how your retirement might look depending on what happens.  They’ll help you understand:

  • How much you can spend?
  • How long it needs to last?  Generally the longer you plan to live the less you can afford to spend each year.
  • How your retirement spending might vary based on good and bad investment markets. Not surprisingly, if you get lucky with good markets, you can spend more or it will last longer.  But you can also work out how to prepare for not being so lucky.
  • Where your money is going to come from.  How will the Age Pension help you as you get older. You might start out retirement with a small part pension, but as you spend down your assets, it’s likely that your Age Pension will rise as you get older.

So what retirement forecasting tools would you find useful?  Let us know by commenting below.

This article is provided by Retirement Essentials Representative Number: 001260855.  We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859.  This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read  any relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.