Keys to liquidity in retirement
When it comes to risks in retirement most people consider the common areas, such as inflation, healthcare and longevity – but a lot of people don’t take into consideration liquidity.
How many look seriously at liquidity?
Having assets available for unanticipated financial emergencies or situations is something all retirees should be looking at, and the risk of having too much of your funds tied up in long-term investments is just as serious as the three factors I mentioned initially: inflation, healthcare and longevity.
If the aim is having a portion of your assets available to you on an immediate basis, yet still invest low-risk you will very likely be facing a low return. A high-liquidity and high-return situation is going to see an uptick in risk.
So, the question is, how do you best go about sensible, sound investment as well as maintaining a reasonable level of liquidity?
Diversification is an excellent way of maintaining an acceptable balance within your portfolio and should include long and short-term investments. The short-term investments will fall into the category of being easily liquidated if required, while long-term investment opportunities will provide the foundation for your retirement.
Long-term investments such as real estate can prove problematic when it comes to releasing your invested funds on short notice and can result in an overall loss, so you’ll want to look more towards life and deferred annuities, even though you’ll be faced with some charges.
Spreading out maturity dates is a good way of helping to provide some room for manoeuvre.
Strategic, systematic withdrawals from a diversified portfolio will provide you with liquidity and also allow you to take advantage of any change in investment conditions or even changes in the law.
If you approach your retirement with a certain level of liquidity as a goal rather than something you have to deal with later on down the line you’ll be able to minimise risk and also minimise any losses that can occur when you find yourself needing funds immediately for an unexpected situation.
A cash reserve is a good idea, but a plan to have that cash reserve working for you as best it can during the times you don’t need it is also key. You have to remember that pension plans aren’t “one size fits all”, you have to make it individual to you and ensure that it fits your needs.
A quality financial advisor is key to helping you find a plan that works for you.
Liquidity in retirement – where to find out more
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