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Kris Wrenn

Transitioning From an Accumulator to a Retiree

Written by Kris Wrenn

Transitioning from the accumulation phase to the retirement phase represents not only a change in financial strategy but also a complete psychological shift, one that I have worked through with clients countless times over the years. In my view the role of a financial adviser is never more important than at this stage. The transition to retirement forces people to assess their goals and priorities but it can even make them question their own identity and purpose in life.

The prospect of retirement can trigger feelings of loss aversion and anxiety about the unknown. Retirees may worry about losing the structure and social connections provided by their careers, as well as just fearing financial insecurity in retirement. A financial adviser can alleviate these anxieties by creating a comprehensive retirement plan that addresses concerns about income, expenses, and long-term financial security, providing retirees with peace of mind and confidence in their financial future.

We all know that every now and again there are significant falls on the share market. The latest was due to covid 19, prior to that we had the GFC. During these times, it is easy for an accumulator to see the opportunity this creates. Knowing you do not need an income from your Super and knowing you will continue to add to it, it is easier to convince oneself to make extra contributions and benefit from the lower “prices” on offer. However contrary to this, as a retiree (or pre-retiree), it is easy to panic and make the poor decision to sell down shares at the lower prices. This is known as “behavioural risk” and highlights how ones very behaviour, one’s mindset, can change in retirement.

When it comes to risks and retirement, there is perhaps none more important than “sequencing risk”. This is the risk of experiencing a fall in your retirement investments just prior to or at retirement. Imagine a $1,000,000 Super balance that might, at a 6% drawdown rate, provide for a $60,000 p/a income. Now imagine a 25% fall in that balance thanks to a covid / GFC style event. The $1,000,000 is suddenly $750,000 and the same 6% p/a drawdown, the $60,000 p/a income becomes $45,000 p/a. This represents a completely different lifestyle change for the retiree and it’s not an overstatement to say that many people that had planned to retire in 2008 delayed retirement thanks to the effects of the GFC.

One of the most typical fears experienced by a retiree is that they will run out money too soon, otherwise known as “longevity risk”. This is a natural concern and certainly one that a financial adviser can help alleviate through the appropriate allocation of assets and a focus on where to draw income.

In summary, transitioning from accumulator to retiree involves psychological, behavioral, and financial adjustments, and the support of a financial adviser is invaluable throughout this process. By addressing psychological factors such as loss aversion and financial identity, while also providing expert financial guidance and support to mitigate behavioural, sequencing, and longevity risks, a financial adviser can empower retirees to embrace retirement with confidence, resilience, and a sense of purpose. Ultimately retirement is a time where people can find themselves incredibly anxious about financial security, when it should be a time when they feel most secure, having spent several decades in the workforce preparing for it.

Speak to a Hudson adviser now and form a comprehensive plan to model your assets and income across the retirement years.

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