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What is financial freedom and how do I get there?

3 steps to financial security in retirement

Quite often the first question that comes to mind when we think about retirement is, how much money will we need? But it’s not just about the money.

Financial security in retirement is feeling confident you’ll have enough money to retire. It’s achieved by accumulating enough assets, and ensuring you have enough income, to meet your financial needs for the rest of your life.

Some people have more than enough money to be financially independent, but they stay in jobs they don’t enjoy. Others may not have as much wealth, but pursuing their passion is more important.

Wherever you fit on this spectrum, we all need to think about generating enough income from investments to achieve financial security in retirement. So how can we get there?


We all need to think about generating enough income from investments to achieve financial security in retirement. So how can we get there?

1. What do you want to do in retirement?

The first question to ask is, what do you want to do when you’re retired?

Our experience is that people in retirement want to spend time with those who are most important to them, like their families and communities. And they want to engage in the things that are most interesting to them, like travel or volunteering.

Deciding how much money you need in retirement is really a factor of how long you’re going to live. But there are also other factors, such as the lifestyle that you want to lead.


What you really want TO DO in retirement will drive decisions in relation to the money.

How much money do you want to draw down, and when do you want to draw down?

Are there specific things you’d like to achieve, such as an overseas holiday or renovating the house?

So what do you really want TO DO in retirement? That will then drive the decisions in relation to the money.

2. Understand your money matters

Educating yourself is an important first step towards feeling confident and secure about your money. While you don’t have to be an expert, it’s good to have a working knowledge of your money, assets, debt, income and expenses.

You should balance this with an understanding of the impact of inflation, superannuation, tax rules and risk.

You’ll need to get a sense for what kind of returns are realistic – it might not make sense to just extrapolate the recent past.

It’s also important to consider how you’d react to a period of negative returns.


You should understand the impact of inflation, superannuation, tax rules and risk.

Nobody likes to see their account balance pushed around by the markets, but you’ll probably need to get some growth from your portfolio. And the only way to achieve that, is by retaining some exposure to investment risk.

Knowing how much risk you need to take, and having a strategy to cope with volatility, reduces the chance that you’re forced to sell assets at depressed prices.

3. Develop a relationship with a financial planner

Superannuation, tax and Centrelink rules change from time to time.

Financial planners have an in-depth understanding of changing legislation and rules and can help you adjust your financial plan as your needs evolve.


A financial plan helps you make sure your money lasts the distance.

Having a financial plan is about making sure your money lasts the distance. Staying disciplined creates peace of mind. And partnering with a trusted professional will help you keep on track through retirement.


Asset class performance

Data as at 31 October 2017

  1 month
(%)
CYTD
(%)
1 year
(%)
5 year
(% pa)
10 year
(% pa)
Australian Shares
S&P/ASX 300 Accumulation
4.02 8.06 15.92 10.18 3.05
Australian Bonds
Bloomberg AusBond Composite
1.09 3.30 1.64 4.12 6.18
International Shares - hedged
MSCI World, excluding Australia, Hedged $A
2.51 15.59 21.85 13.55 4.87
International Shares - unhedged
MSCI World, excluding Australia, $A
4.28 11.74 22.00 18.78 6.18
Cash
Bloomberg AusBond Bank Bill
0.15 1.47 1.76 2.40 3.72
International Bonds
Barclays Capital Global Aggregate, Hedged A$
0.47 3.24 1.92 5.08 3.11
Global High Yield
BAML Global High Yield Constrained, Hedged A$
0.67 8.48 10.09 8.65 10.27
Emerging Markets
MSCI Emerging Markets, A$
5.92 24.90 25.49 11.36 2.52
Global Property
FTSE EPRA/NAREIT Developed, Hedged A$
0.18 4.59 6.92 10.30  
Global Infrastructure
FTSE Global Core Infrastructure 50/50, Hedged A$
3.74 11.42 14.98 16.57  

Key indicators

  Level 1 month (%) or bps +/- 1 year (%) or bps +/- 52 week Low/High
Australian Govt 10 yr bond yield  2.67 -16.9 32.5 2.35 2.98
United States Govt 10 yr bond yield  2.38 4.9 55.1 2.06 2.63
German Govt 10 yr bond yield 0.36 -10.0 20.2 0.15 0.60
Chinese Govt 10 yr bond yield 3.83 16.7 114.2 2.83 4.01
Australian official cash rate 1.50 0.0 0.0 1.50 1.50
United States official cash rate 1.25 0.0 75.0 0.50 1.25
Euro official cash rate 0.00 0.0 0.0 0.00 0.00
Australian unemployment rate 5.5 -0.1 -0.1 5.5 5.9
AUD/USD 0.77 -2.28% 0.76% 0.72 0.81
AUD/JPY 87.13 -1.36% 8.96% 80.36 89.89
AUD/EUR 0.66 -0.83% -5.18% 0.65 0.73
AUD/GBP 0.58 -1.27% -7.36% 0.57 0.63
Crude Oil (US$/barrel) 61.35 8.03% 32.79% 41.61 64.27
Gold (US$/Troy Oz) 1267.00 -1.13% -0.35% 1127.80 1346.00

Major share markets

  1 month
(%)
CYTD
(%)
1 year
(%)
5 year
(% pa)
10 year
(% pa)
S&P 500 (US) 2.33 16.91 23.63 15.18 7.51
FTSE-100 (UK) 1.82 8.53 12.06 9.33 4.98
DAX (Germany) 3.12 15.23 24.05 12.75 5.13
Topix (Japan) 5.45 18.58 29.44 21.35 2.96
CSI300 (China) 4.44 23.51 22.55 14.68 -1.75

Data as at 31 October 17.
Source: Factset. Asset Class and share market indices are accumulation or total return unless otherwise stated.
A$ – performance denominated in A$, includes currency movements.
Hedged A$ – hedged performance denominated in A$, removes currency movements.



State Super Financial Services Australia Limited trading as StatePlus (ABN 86 003 742 756 | AFSL 238430) is wholly owned by FSS Trustee Corporation (ABN 11 118 202 672 and AFSL 293340) as trustee of the First State Superannuation Scheme (ABN 53 226 460 365). This information is of a general nature only and is not specific to your personal circumstances or needs. Before making any decisions based on this information you should consider its appropriateness to you. Every effort has been made to ensure the information contained in it is accurate. We strongly recommend that you consult a financial planner before taking action based on this information. Past performance is not an indicator of future performance. Neither the SAS Trustee Corporation nor the New South Wales Government take any responsibility for this information or the services offered by StatePlus, and nor do they, FSS Trustee Corporation or StatePlus guarantee the performance of any product provided by StatePlus.