Retirement is a time to look forward to. Yet, because it is a new experience, finding the answers to some basic questions can be quite a challenge. If you are like many new retirees you may be looking for answers to these questions:

•  How much money do I need to live comfortably?
•  How can I protect my money against inflation and make my money last?
•  How can I maximize my income without jeopardising my security?

The following scenarios illustrate how two people go about finding answers too these questions.

John
John has retired at 65 with $300,000 in savings. He owns his home and has no immediate plans for any major expenditure. John's first instincts are to invest conservatively. It means though, that John is not eligible for social security benefits, as all his investments are included in the assets and income tests. This approach to investing results in an after tax income of $15,926.

Margaret
Margaret is of a similar age to John, and also has $300,000 to invest. Margaret realized that she lacks expertise in investing and seeks the help of a financial adviser. Over a series of meetings, Margaret and her adviser discuss what's best for her.
Together, they plan so that she:

•  Has enough money to live on in comfort
•  Has the security of a regular income
•  Has the flexibility to draw on her capital for luxuries and emergencies
•  Is able to preserve her capital for her children
•  Invests in a diversified way
•  Earns a good rate of return
•  Pays as little income tax as possible
•  Receives some Age Pension as well as the associated fringe benefits

The investment approach that Margaret and her adviser agree upon results in a yearly income of $20,339. She receives a part pension and pays no income tax.

Investment Plans
Margaret was able to achieve nearly 30% more income than John, with the same resources, basically because the mix of investments chosen makes the most of social security and taxation rules.

Different investments are treated differently under the various tax and social security rules. They pay different levels of income, with some providing capital growth as well. Below is a chart summarizing the types of investments you may be considering, their different characteristics and their advantages and disadvantages.

Generally no one investment will achieve all your requirements. The idea is to use a diversified mix of investments to achieve the best possible outcome for you.

As your circumstances are probably different to John's and Margaret's, you may not be able to achieve such a dramatic increase in your income. However, your financial adviser will be able to help you make the most of all that is available.

Types of Investments

The above material contains comments of a general nature only and should not be relied upon as giving any specific or general investment or financial advice of any nature.

A Step by Step Approach

The 3 key steps in making your own investment plan are:

Step 1:

Write down and total all possible sources of income, including:

Step 2:

Estimate the amount of money you need each week to live on.

Step 3:

Ask your financial adviser to draw up a plan (often called a "Statement of Advice") so that you have a regular income to match your weekly needs (as well as achieve your other goals of flexibility, access and security).

Reproduced with the kind permission of ING Funds Management Limited

© 2000 - 2006 Forsyte Consulting Pty Ltd unless otherwise stated.