The Unforeseen Financial Risks of Retirement

Written on the 15 March 2024 by Parkside InvestorPlus

Golden sunsets, leisurely days, and the freedom to finally pursue your passions, this is the dream of retirement for many Australians.

Retirement, for many, conjures up images of a blissful escape from the daily grind.

But beneath this idyllic picture lie some harsh realities, especially concerning finances.

While most people plan for the sunny days, navigating the unforeseen financial risks of retirement can feel like walking a tightrope, which only becomes apparent when they enter the retirement phase of their lives.

According to a 2023 survey by ASIC, 42% of Australians approaching retirement expressed concerns about their financial security.

This statistic highlights the need to address not just the well-known risks, but also the often-overlooked ones that can significantly impact your golden years.

In this article I cover some of the lesser considered risks.

Longevity Risk

Medical advancements and healthier lifestyles have seen Australians living longer than ever before.

The Australian Bureau of Statistics projects that by 2050, the number of Australians aged 65 and over will reach almost 9 million, a staggering 88% increase from 2020.

This increased lifespan, while a positive development, translates to a longer period over which you'll need to sustain yourself financially.

Inflation Erosion

The insidious nature of inflation can silently eat away at your retirement savings.

We’ve all heard, read, and listened about the dreaded inflation genie and how the RBA has been trying to get it back in its bottle.

Inflation in 2023 had peaked at around 8% and now seems to be trending down.

However, that will most likely not stop from services providers from increasing their prices in the name of inflation.

And while the CPI trend maybe on the decline, your spending power at your service provider may take some time to match the ‘official’ rate of inflation.

Beyond the Obvious: The Hidden Risks

While inflation and longevity are well-known challenges, several other, less-discussed risks can disrupt your retirement plans:

• Cognitive Decline: As we age, the risk of cognitive decline increases. This can make managing finances, spotting scams, and making sound investment decisions more challenging. Planning for potential future assistance with financial management can provide peace of mind.
• Long-Term Care Costs: The cost of aged care can be substantial, and relying solely on government support might not be sufficient. Considering private health insurance or exploring alternative care options can help mitigate this risk.
• Cybersecurity Threats: Older adults are increasingly targeted by online scams and financial exploitation. Educating yourself and implementing cybersecurity measures can protect your hard-earned savings.

Building a Resilient Retirement Plan

While these risks might seem daunting, proactive planning can significantly mitigate their impact. Here are some steps you can take:

• Seek professional financial advice: A qualified financial advisor can help you create a personalized retirement plan that considers your specific needs and risk tolerance.
• Diversify your investments: Don't put all your eggs in one basket. Spread your investments across various asset classes to minimize risk and maximize potential returns.
• Stay informed: Keep yourself updated on financial news and trends, especially those related to retirement planning and potential risks.
• Prepare for the unexpected: Build an emergency fund to cover unforeseen expenses and unexpected events.

Retirement should be a time to enjoy the fruits of your labour, not a constant source of financial worry.

By acknowledging the potential risks and taking proactive steps, you can navigate the uncertainties and build a secure and fulfilling retirement journey.

Remember, a little planning today can go a long way in ensuring a worry-free tomorrow.

If you’re ready for retirement and not sure of your options or if you are a retiree and wanting more positive outcomes in your retirement phase, contact us at Parkside InvestorPlus at (02) 9899 4899.