Example 2:  Investing for Income Needs in Retirement

Marie

Age 60
Starting Investment amount $500,000
Cash needs over next 3 years $90,000
Investment Time Horizon 30 years
Investment Purpose Retirement Income

Marie is 65 years old and has recently retired.  She has paid off her mortgage and has estimated that she will spend $30,000 per year in retirement, and that she will live to 95.

Based on her calculations, she would like to earn 5% a year on her investments.  Marie is not a big risk taker, but she is worried about her money running out before she retires. Given that her total investment period is 30 years, she decides to invest some of her retirement funds in shares.  Marie therefore decides to put 60% of her money into defensive assets, and 40% into growth assets, split as follows:

Asset Class Percent Amount Estimated Return
Cash 18% $90,000 2.50%
Bonds 42% $210,000 4.00%
Shares 40% $200,000 7.50%
Estimated Weighted Return 5.13% p.a.

 Choosing investments

When choosing her investments, Marie decides to put $90,000 in cash because she will need access to this cash to live on over the next three years.  She splits this cash between a high interest savings account and a series of term deposits:

  • 15,000                   High Interest Saving Account
  • 15,000                   6 month term deposit
  • 15,000                   1 year term deposit
  • 15,000                   18 month term deposit
  • 15,000                   2 year term deposit
  • 15,000                   2.5 year term deposit
  • 15,000                   3 year term deposit

She is concerned about fees, so decides to invest in both bonds and shares via exchange-traded funds.  She likes the idea of receiving dividends on her shares, so decides to put a portion of her investment into high dividend paying shares.  She invests:

  • 30%                       Government Bond Fund ETF (very low risk)
  • 10%                       Corporate Bond Fund ETF (medium risk)
  • 15%                       High Dividend ETF (high risk)
  • 15%                       ASX 200 ETF (high risk)
  • 10%                       International Stock market ETF (highest risk)

Marie will monitor the performance of her portfolio via her brokerage account, and intends to check the performance monthly, although she has decided to only make changes to her portfolio allocation and rebalance annually.

The information on this website is for general information purposes only. It is not intended as  financial or investment advice and should not be construed or relied on as such. Before making any commitment of a financial nature you should seek advice from a qualified financial or investment adviser. No material contained within this website should be construed or relied upon as providing recommendations in relation to any financial product. Balance Impact does not recommend or endorse products and does not receive remuneration based upon investment or other decisions by our email recipients, publications, newsletter or website users.

Worked Example: Income in Retirement

Example 2:  Investing for Income Needs in Retirement

Marie

Age 60
Starting Investment amount $500,000
Cash needs over next 3 years $90,000
Investment Time Horizon 30 years
Investment Purpose Retirement Income

Marie is 65 years old and has recently retired.  She has paid off her mortgage and has estimated that she will spend $30,000 per year in retirement, and that she will live to 95.

Based on her calculations, she would like to earn 5% a year on her investments.  Marie is not a big risk taker, but she is worried about her money running out before she retires. Given that her total investment period is 30 years, she decides to invest some of her retirement funds in shares.  Marie therefore decides to put 60% of her money into defensive assets, and 40% into growth assets, split as follows:

Asset Class Percent Amount Estimated Return
Cash 18% $90,000 2.50%
Bonds 42% $210,000 4.00%
Shares 40% $200,000 7.50%
Estimated Weighted Return 5.13% p.a.

 Choosing investments

When choosing her investments, Marie decides to put $90,000 in cash because she will need access to this cash to live on over the next three years.  She splits this cash between a high interest savings account and a series of term deposits:

  • 15,000                   High Interest Saving Account
  • 15,000                   6 month term deposit
  • 15,000                   1 year term deposit
  • 15,000                   18 month term deposit
  • 15,000                   2 year term deposit
  • 15,000                   2.5 year term deposit
  • 15,000                   3 year term deposit

She is concerned about fees, so decides to invest in both bonds and shares via exchange-traded funds.  She likes the idea of receiving dividends on her shares, so decides to put a portion of her investment into high dividend paying shares.  She invests:

  • 30%                       Government Bond Fund ETF (very low risk)
  • 10%                       Corporate Bond Fund ETF (medium risk)
  • 15%                       High Dividend ETF (high risk)
  • 15%                       ASX 200 ETF (high risk)
  • 10%                       International Stock market ETF (highest risk)

Marie will monitor the performance of her portfolio via her brokerage account, and intends to check the performance monthly, although she has decided to only make changes to her portfolio allocation and rebalance annually.

The information on this website is for general information purposes only. It is not intended as  financial or investment advice and should not be construed or relied on as such. Before making any commitment of a financial nature you should seek advice from a qualified financial or investment adviser. No material contained within this website should be construed or relied upon as providing recommendations in relation to any financial product. Balance Impact does not recommend or endorse products and does not receive remuneration based upon investment or other decisions by our email recipients, publications, newsletter or website users.

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