For managing wealth in retirement, it’s generally accepted that most people need to accumulate a lump sum, or a ‘nest egg’ that will provide a ‘top-up’ stream of funds to pensions and any other forms of income.
This is where the real business of wealth management comes into play that is - how to handle the ‘nest egg’ and help to provide the pay check.
At the present time with such historically low interest rates, leaving money in the bank or cash vehicles such as guaranteed certificates is unlikely to produce enough long term cash flow. Financial planners have called it 'going broke safely'. This has never been truer than it is today.
fixed assets such as real estate or valuables could take time to produce
returns and it is not very liquid; meaning it’s hard to produce regular cash
flow (except, perhaps, for renting property). Also, there are no generally accepted
strategies for engaging in this type of investment. If a person has had success with this
approach in the past it’s quite likely they’ll continue with it into retirement
and generate cash flow that way.
Investing in stocks and bonds involves a serious choice; whether or not to seek financial advice from an experienced professional or to ‘go it alone’. Some people may have a knack for investing on their own and will probably continue to be successful. For the average investor, however, there are many pitfalls as a result of powerful emotions such as fear and greed.
A route which is becoming more popular these days is to use a capital management company that makes investment decisions on behalf of their clients. The catch with this approach is that they usually require a minimum investment of $500,000 although some will work with $250,000. The advantage is that they will stick rigidly to your risk tolerance and asset allocation.
These companies use a third party broker or custodian - usually the brokerage department of a well known financial institution. The account is in your name, making it 100% secure and safe. You work with them to create the type of portfolio that suits your circumstances and investing style. From there onwards, there is no incentive for them to switch investments frequently because they are not paid for that. They charge a flat annual fee - on average 1.5%. They also provide general financial planning advice such as tax planning and estate planning.
Another advantage is that if one partner dies, the money management continues undisturbed and the remaining partner has plenty of time to contemplate without worrying about the business of managing wealth.
The pay check in retirement is under your control. Deciding how to manage your wealth is an integral part of this responsibility.