People take the mortality equation in right earnest. They fear they may die prematurely and thus try ensuring in advance that everything falls in place when they are no more there. Quite surprisingly, many of us fail to explore the other spectrum of this assumption. What if we survive beyond our expectations? Have we adequately considered the longevity risk?
What if we live a really long life?
In the event of living long enough, our financial resources might certainly dry up leaving us in a perilous position in later-life. It then becomes crucial to tackle the longevity equation equally well; making sure that we have financial strategies and investment structures in place to outwit God’s bid to bless us with an abnormally long life.
Life does not adhere to any pre-chalked graph
“Life is what happens to you when you are busy making other plans”. It has got no pre-stipulated set of rules. I read a well-circulated internet joke sometime back that said- if you do not smoke or drink, all your friends will die before you and you will be left alone in this world. Yet, complete teetotallers can also fall to premature deaths, may be a lot before their really ‘addicted’ pals. The point is that life follows no pre-chalked path.
This said, you can still have a fair idea of your life expectancy (barring an accident), based on your general health, your genetic leanings and profession (for instance, those working in the vicinity of natural asbestos may suffer from Mesothelioma, a form of cancer). This information can be used to evaluate the kind of investments you should make and more crucially, the time at which you should make these investments.
How you handle and control your money at different junctures of your life is important. It brings us to the crucial question of investment lifecycle. This ‘lifecycle’ helps us understand how effectively we may convert the human capital to financial capital? In other words, how able are we in converting our specific skills and experience to monetary gains?
Our pre-retirement income may vary according to the situations we attract in our lives. Marital discord, ill-heath, inheritance (and associated complacency) can all be reasons why we may fail to work as hard as we possibly can in our prime years. This can certainly affects our savings.
Question of longevity
This being said, there is a good chance we can answer the longevity question well. A smart financial plan will help you tide across the ‘age’ equation better. Variable investment, dynamic distribution of assets, and purposeful measures of security selection can help you build (and shield) wealth a lot more enterprisingly.
You will do well to take a look at these steps:
Generous contributions to the superannuation fund can help. This way, individuals can leverage the power of compound interest to save as much as possible while they are still working. As an interesting afterthought, analysts believe that while the government has done a handy job by raising employer contributions from 9% to 12%, the situation perhaps necessitates the contribution to be close to 17%.
Assessing risk-return trade-offs
It is important to prefigure the risk and return trade-off of portfolios. It is only expected that investments with higher risk quotients are likely to provide higher returns and yet it is important not to be misled by perceptions. I will give you a quick example.
Sometimes, investments begin on a high-risk territory but soon they may attract a large pool of investors who are quite willing to outbid each other for a share of the pie. Naturally, this results in pushing up the price/value of the investment making it a reasonably safer one over a longer period of time.
Social security entitlement
There are many other questions which need careful analysis. After all, there is certainly ‘something’ which may represent your interests better than ‘other things’. Take the case of social security entitlements for example. It can help you with rent assistance, health care card and pension supplement only if you care to find out how it can aid you (and if it can aid you in a wholesome way).
The point I am trying to make is simple enough. You know your business best; in the same vein only a wealth advisor is in a position to assertively tell you what may work best for you. It will be a worthy option then to seek (and heed) his advice.
How have you planned your investments and do they stick to the “investment lifecycle” theory?