The majority of my clients are currently in the most expensive phase of their lives. I call it the Provisional phase. This is when they get married, start a new family, begin paying off debts and experiencing tight cash flows. Their parents, now mostly in their sixties or above, are however in a league of their own, as they are in the Retirement Phase. With this come a few surprises perhaps not yet planned for.
This article will speak to them, but also to their children. Once reaching their sixties, our parent’s needs and outlook become very different from that of their children. They have reached a point where their years of hard work need to start coming together. They need to clear their debt and start to strategise with their focus on capital growth, with income support in mind. Some might say that the older you get the more conservative your investments should become, but it is not ideal in most cases as from entering this phase, a further average of 20 years of supply of income needs to be provided for. In my experience I can honestly say that most parents today certainly do not have sufficient capital on and to make this happen.
Some even take their retirement savings and go open up a little coffee shop, with no experience in the industry, and their business fails within 4years-down goes their years of savings. Others sit with good value of capital, but their asset mix or strategy was not well thought of, while their income drawing from their capital is so high, that their capital lasts them 7-10years before being depleted.
The 2nd scenario I have encountered many times amongst our elderly, especially here in PE, is where the house they live in is too big and costly to maintain, but when considering to downscale, the question is where too and are they saving money doing this, as the smaller safer areas might be costing them more money at the end of the day, however their ongoing maintenance could be less on a cash flow basis. Today we are still experiencing a good buyers market, so this makes it less attractive to sell your car or house in order to get great value.
The third scenario I have encountered is the WHERE? Where would a widow at age 70 with no children move to. Not so easy if most old age homes in PE have a 3-4 year waiting list! You might have the big house, not feeling safe, having just not enough income paid to you from your combined years of efforts, but the house should be a capital asset, however you are still in there and it can not be unlocked or released. So sell the house, consider moving into the safer, smaller place closer to the main malls, rent at an affordable price pm, so that the bulk of capital released after costs could be added to create more income in your pocket and thus have a far better chance to survive the retirement years ahead in comfort.