6 ways to help turn your savings into reliable retirement income

Retiring comfortably isn’t just about how much you’ve saved; it’s about making sure that your money keeps working long after you stop working. Yet knowing how to invest and spend your money – without running out of it – is something far fewer people plan for.

Plan for a rainy day

We’re experiencing a period of economic volatility at the moment and it’s making people understandably nervous. While you can’t control what markets are doing, you can control your exposure to them. Keeping some of your retirement savings in safe assets like cash, term deposits, bonds and other defensive holdings isn’t going to generate big returns. They’re essentially a financial buffer for the inevitable storms that markets throw your way so you can cover everyday living expenses and maintain your retirement plans without having to make decisions under pressure, including selling growth assets like shares at bad times.

Spread your risk

Diversification goes hand in hand with that rainy-day thinking. My advice to clients is to have at least three to five years’ worth of living costs in ‘safe’ assets. This means you can access a steady retirement income while markets recover without having to dip into the rest of your portfolio. The key is not having all your eggs in one basket. If one investment isn’t performing, you’ve still got a plan B and a plan C. Multiple income streams give you resilience in a way that a single investment simply can’t.

Invest in income-generating assets

Many people have investment properties, which can be great long-term investment vehicles but don’t necessarily generate the income you need in retirement. With an investment property, the net income that’s left over after accounting for expenses like maintenance, insurance and management costs can be quite low. If you have a diversified investment portfolio generating income, and the returns aren’t quite covering what you need, you can sell 1% of your portfolio to bridge the gap at a very low cost. However, you can’t sell 1% of an investment property – you’re either all in or all out. That flexibility is where the real income difference lies.

Picture your retirement

Planning how much money you need to retire means nothing until you understand what it looks like in practice. Are you someone who wants a membership at the local golf course? Are you planning to travel to Europe every year – flying business class or economy? Because the difference between that person and someone who wants to stay local, look after their grandchildren two days a week and take camping trips on weekends is enormous. Once you can answer those questions, a qualified financial adviser can start to build a picture of what the numbers need to look like.

Don’t let inflation erode your savings

People often forget to factor in the impact of inflation on their savings. People see their term deposit generating 5% interest but don’t realise that the value of money reduces over time. That 5% might only be delivering 2% in real terms once inflation is accounted for. Keep those safe assets in place for a rainy day but the remaining portfolio needs to be working harder in the background, in growth assets that offer genuine protection from inflation. That’s the power of diversification – the security of knowing your near-term needs are covered and the confidence that your money is still building real value for the years ahead.

Structure your money as tax-effectively as possible

Tax is another area where the right structure can make a significant difference. Any investment held in your personal name – whether it’s shares, property or a managed fund – can have tax implications, whether that’s income tax on returns or capital gains when you sell an asset. During your working life, money inside superannuation is taxed at just 15% on earnings. But once you’re retired and able to access your super, that money can be invested tax-free. Getting that structure right is one of the most powerful things you can do to protect your retirement income.

Draw down sustainably

You’ve spent your whole working life building that nest egg so it’s important to be mindful about how quickly you eat into it. Once capital is gone, it’s very hard to make up. If you retire at 60 or 65 and erode your savings too quickly, by the time you’re 80, you’re left with very few options and no real ability to rebuild. That’s when lifestyle changes become unavoidable rather than a choice.

Mark Grasso is a Partner, Financial Adviser and the Operations Manager at Oxlade Financial. Mark is a qualified Certified Financial Planner® and holds a Master of Financial Planning and Bachelor of Business (Financial Management).

Any information in this article is general in nature and does not consider any of your personal objectives, financial situation and needs. It is as intended, to be of a general nature only and NOT a recommendation to you. You should consider whether the information is appropriate to your needs, and where appropriate, seek personal advice from a registered financial adviser.