As retirement approaches, many investors shift their focus from building wealth to preserving it and generating a reliable income. This often involves adjusting your investment portfolio from growth assets (like shares and property) to income-producing assets (like bonds, term deposits, and dividend-paying shares). But what does this transition mean?
Growth Assets: Building Wealth
During your working years, growth assets play a crucial role in building your retirement nest egg. They tend to offer higher long-term returns but are associated with greater short-term volatility. Shares and property can rise and fall in value, and while this is manageable when you’re accumulating wealth, it’s less ideal when you need a consistent cash flow in retirement.
Income Assets: Stability and Cash Flow
As you enter retirement, priorities often shift to security and steady income. Income assets, such as fixed interest, infrastructure investments, annuities, and certain dividend-paying shares, can offer more predictable returns. The goal is to generate enough income to support your lifestyle, without relying heavily on drawing down capital during market downturns.
A Gradual Shift Is Best
Rather than making a sudden switch, many retirees gradually reduce their exposure to growth assets. This can help maintain some growth potential while smoothing out risk. For example, your portfolio might transition from 80% growth and 20% income to a more balanced 50/50 mix, and eventually to a more defensive allocation.
The Right Mix Depends on You
There’s no one-size-fits-all approach.
Your desired lifestyle, risk tolerance, life expectancy, and access to other income sources (like super or the Age Pension) all play a role. A financial adviser can help you adjust your portfolio to meet your goals, keeping you comfortable and financially secure throughout retirement.
