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For many, retirement is the perfect time to explore the world. For World Financial Planning Day 2019, we talked to Nathan Nash CFP® about how he’s helping clients #planwell2livewell by getting the balance right between travel goals and everyday living expenses.
Each year, World Financial Planning Day gives people an opportunity to learn about the benefits of working with a CERTIFIED FINANCIAL PLANNER® professional on strategies to manage financial affairs and achieve life goals. On 2 October 2019, and in the weeks beforehand, a global network of member organisations in 27 countries and territories host programs and events spreading the word about the value of the financial planning process.
This year, the theme for World Financial Planning Day is ‘Plan well to live well.’ But just what does living well mean to different people? For people in retirement, it can often involve having the freedom and finances to explore, far and wide. For their in-depth report on retirement planning, Australian Unity surveyed 1,000 Australians approaching, or already in, retirement about what they’re planning for. They found that the majority of pre-retirees want financial security and enough money to enjoy a few treats. And the most common treat they have in mind is travel. Whether it’s visiting far flung destinations around the world, going around Australia in a campervan, or regular trips to see family, pretty much everyone has a travel agenda for retirement.
This is an insight that Nathan Nash CFP® can back up based on his experiences with clients. “Regardless of age or life stage, everyone wants to travel,” he says. “When you have kids at home, it’s family holidays. When you’re retired you don’t have time constraints and can get away for longer. In fact, it’s almost impossible to get my clients to sit down face-to-face with me in the winter, because they’re all off traveling! But whether a client is retired or not, it always comes down to what you can afford to spend on travel without taking away from your budget for savings and day-to-day expenses.”
Looking at all the numbers
As a CERTIFIED FINANCIAL PLANNER® professional with 17 years’ experience in the industry, Nathan knows that striking a balance between wants and needs is essential for every client’s financial plan. “One of the most valuable services we provide is helping people balance their lifestyle aspirations and financial security,” says Nathan. “By running the numbers for their overall budget, we provide them with peace of mind, knowing they can take that trip they’re planning without compromising their financial security.”
For clients approaching or starting retirement, Nathan and his team offer comprehensive financial modelling, based on life expectancy, with five years added on as a contingency. “We factor in conservative returns and look at when the Age Pension will kick in as their asset levels reduce over time,” says Nathan. “This gives us a pretty clear picture of what their budget is across the board – for travel money and the day-to-day stuff. So if you can afford to be spending $10,000 a year that might be enough for one big international trip and a couple of shorter breaks in Australia. Or maybe you put that towards a much longer spell on the road in a campervan.”
Of course, circumstances can change throughout retirement, and you may end up traveling less or staying closer to home as you grow older. “Depending on your lifetime finances, allocating that $10,000 to travel now might mean spending less down the track,” says Nathan. “That’s something you can allow for if you have the complete year-by-year financial picture modelling can give you. Let’s say you plan to stop the overseas trips after age 75, then your annual travel budget might drop back to $5,000. But by this stage you might also need more to spend on healthcare. So it’s a balancing act between your current and future needs as well as travel and essential costs.”
Flexible income options
To deliver the financial flexibility clients need to keep all these things in balance, Nathan will also carefully tailor retirement income stream choices. “Thanks to their flexibility, account-based pensions can be a good option for funding retirement,” says Nathan. “To make sure our clients keep their account-based pension going for as long as possible we’ll recommend having a decent amount in assets that will protect their balance – known as defensive assets. We’ll also want to plan for having funds available for monthly drawdown for everyday needs and an annual lump sum to pay for travel. So it’s also important to make sure enough of their money is in liquid assets so it isn’t locked away for too long. Of course, making recommendations for retirement income products very much depends on each client’s circumstances. There’s no one-size-fits-all solution.”
Do away with debt
If one of Nathan’s clients were to be borrowing to ramp up their retirement travel, it would definitely not be the result of his advice. “At any time in your life, borrowing money means knowing how you’re going to service that debt in future,” says Nathan. “In retirement, your income is coming from savings, not salary. The repayments are only going to increase your day-to-day budget in the future, leaving you with even less money for treating yourself. And if spending more now means running out of money in a decade, you could find yourself living on just the Age Pension which may not be enough to meet your needs. Being unable to afford to live longer is not a position anyone would want to find themselves in.”
Get set for travel
As well as the overall financial planning piece, Nathan helps clients prepare for their adventures with five tips to keep finances running smoothly while they’re away:
– Have an emergency fund in an account you can easily access to deal with any unforeseen expenses while you’re away.
– Share an email address with friends, family and any professionals who might need to contact you – your CFP®, accountant etc. Be sure to check it regularly when you have access to the internet.
– Arrange suitable travel insurance for your trip – whether going overseas or travelling in Australia. If heading abroad, check it includes adequate cover for a health event.
– Check bill payments will be made automatically while you’re away. Arrange direct debits for any rent, insurance, credit cards or and other services or repayments.
– Organising a Power of Attorney can also be helpful if something unexpected should happen and you need someone to act on your behalf in your financial affairs.