The Father Of All Retirement Mistakes

I guarantee, you, and everyone you know, and everyone they know have fallen for the father of all retirement mistakes, at least once. When I first came into financial planning it stood out like a third thumb.

But before I reacquaint you with ‘Dad’, see if you can identify the pattern in the following four questions:

1.     Do you know how much you earn per week or month from your work?
2.    Do you know the value of the business you work for? (Do you care?)
3.    Do you know how much your superfund generates in income per year?
4.    Do you know the approximate value of your superfund?

Can you see the pattern?

I’ll bet you were able to answer questions 1 and 4 with relative ease, but struggled to answer questions 2 and 3, if at all. Right? In fact you probably scoffed at question 2 along the lines of, “…why would I want to know that?”

The Paradox
We concern ourselves with how much we earn at work but don’t even think about the value of our employers business, but then we worry about the value of our super funds but don’t think about its earning capacity. Why?

The Mistake
We look at our working life in terms of income but our retirement as a lump sum. We focus too much on the value of an asset rather than its ability to generate cash flow in retirement. It’s a bit like watching your house double in value. Then what?

It’s the difference between the goose and the golden eggs. Too many people think retirement is all about eating the goose (lump sum) instead of living off the golden eggs (cash flow).

The Goal
The goal of retirement should be to make sure your money out-lives you instead of you outliving your money. To have more money at the end of the month instead of more month at the end of your money. And to do that means cash flow should be king.

Let me give you an example.

Two months ago we vested our SMSF clients into a healthcare property trust with a forecast yield of 8% for 2015. The priority was not capital gain because it’s the income which pays the bills. That said, I would expect it to appreciate in value quite nicely over time because it’s a good investment.

That’s why I’m not a big fan of international funds inside super. Most of them are all growth (supposedly), with very little income. They’re not very tax effective either.

Worst of all, relying on capital growth means you are too heavily reliant on the markets going up to fund your retirement. It was this very approach which created so much pain during the GFC. It leaves you staring at the cracks in the roof at night when the markets head south.

The Solution – Cows and Geese
Ultimately you need an asset base that generates income regardless of what the markets do. It’s the very reason we called the business ‘Suncow Wealth’ – your asset base should be a cash COW. It puts the moo back into your moolah!

And if cows aren’t your go, be a breeder of good geese and live off the golden eggs. Awaken the farmer within. Trust me, you’ll never look back.

So there you have it. Surviving the Mother of All Stock Market Corrections (last week) and dealing with The Father of All Retirement Mistakes requires the same approach. Peace of mind ultimately comes from having an asset base that generates good cash flow and which doesn’t rely on capital gain. Just make sure you tell the kids!

Have a great week!

P.s. I didn’t realise it until today but last week was the one year anniversary for the Moowsletter. So I just want to say a very big thank you to every one of you for your support and feedback. Also, thank you to all those people who forwarded on the Moowsletters to friends and family. I hope you have learnt as much as I have…beginning with how to use spell check!

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This information has been prepared without taking into account your objectives, financial situation or needs. Before making a decision based on this material, you should consider its appropriateness in regards to your objectives, financial situation or needs. You should seek advice about how the relevant laws impact on your particular circumstances. Suncow Wealth Pty Ltd is a Corporate Representative No.441116 of AFSL 393254.