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Are you Ready for Retirement: Part 2


Read our blog for financial insight and informative articles.


This is the second in a series of ‘Are you ready for retirement?’ articles.

Read article one here.

Gavin and Jenny look at each other before posing the question we know is coming. “What do you mean we have a 25% probability that we can retire now?”

At this point, we have to jump in.

“It’s not that you have a 25% probability of being able to retire.  You have a 100% probability of being able to retire.  That choice is totally yours.  Our job is just to ensure your portfolio will provide you with the retirement you want, and it’s our job to be honest no matter what.  As we run the numbers, it doesn’t add up.  But don’t worry, there’s good news coming…”

“What’s the good news?” Gavin interjects with a smirk.

Let’s just take a step back and review…

Gavin was a successful executive and had worked his way up to the top of his division. With that came increased income and improved lifestyle.  However, stress was the unwelcome companion and now Gavin wanted to walk away, earlier than planned. That’s why they were talking to us.

When we asked Gavin and Jenny the key retirement questions, they came back to us with the following answers, summarised below.


Goal: retire with confidence Desired
When to start retirement 2019
Years in retirement 35
Annual spend out of portfolio in retirement (today’s $) $120,000 before super

$92,000 after

Estate when retirement concludes (today’s $) $400,000
Savings per year until retirement $0
Portfolio (growth/defensive) 60/40
Current amount dedicated to retirement $1.91m
Probability factors used turn out as well as expected or better 75%

Gavin and Jenny are both 60 so they are looking at five years of higher withdrawals (taking them to age 65), and then 30 years of lower withdrawals (thanks to government superannuation).  They both feel 95 is a very generous life expectancy – unfortunately, both sets of parents have passed away, none living past age 86.

All the above looks achievable, and indeed it may be.  But we know that the future is uncertain.  So, rather than Gavin and Jenny simply crossing their fingers and hoping for the best, we can look at the probability that a 60% growth and 40% defensive portfolio can produce the planned withdrawals and leave their two children the estate they’re hoping.

And the answer is…it’s unlikely to.  We calculate the probability at approximately 25%, which is far too low – Gavin and Jenny want at least 75% certainty built into their plans.

That can perhaps be summarised as the bad news, but we prefer to call it the honest reality.  Fortunately, there’s a path forward.  You see, as much as Gavin and Jenny want a definite lifestyle and to leave an estate, they also have flexibility.

For example, we ask Gavin and Jenny, “You’d like to leave an estate of $400,000, in today’s dollars, for your children.  Is that set in stone or is there some flexibility there?”

Gavin cuts in, “Yes”.  But Jenny looks less sure.

Gavin, sensing his wife’s uneasiness, says, “Listen honey, we’re leaving them the house. That’s paid for and worth at least $750,000 now, and it may increase in value.”

Jenny responds, “True, but I’d like to leave at least $100,000 in the portfolio for each of them, to tide them over until the property settles.”

Gavin turns to us, “I agree.  But yes, we do have some flexibility with that one.”

It turns out that, when we pose the question properly, they have flexibility on most items, which we summarise below.


Goal Flexibility
Goal: retire with confidence Desired Flexibility
When to start retirement 2012 2014
Years in retirement 35 30
Annual spend out of portfolio in retirement (today’s $) $120,000 before super $92,000 after $100,000 before super $72,000 after
Estate when retirement concludes (today’s $) $400,000 $200,000
Savings per year until retirement $0 $0
Portfolio (growth/defensive) 60/40 70/30
Current amount dedicated to retirement $1.91m $1.91m
Probability factors used turn out as well as expected or better 75% 70%

It was now obvious to everyone in the room that certain factors just meant a lot more to Gavin and Jenny than others.  And in order to do our job properly, we really need to understand that.

“Gavin and Jenny, you’ve done a great job thinking through your flexibility here.  But it’s clear to everyone that some of these items are a higher priority than others.  Let’s talk about your priorities.  Of all the above, what’s the most important factor to making your retirement what you most want it to be?”

First and foremost, they have no more money to put into the portfolio.  This is everything.  There’s no flexibility there.  We rank that number one for obvious reasons.

For the next highest priority, the tone of Gavin’s voice says it all.  Work is a stress.

He exclaims, “I feel if I work another two years, I’ll live five less.”

Check.  ‘Retire now’ goes next on the list.  And since they can’t save if they’re retired, we put that factor with it.  As they rank their priorities, the following order appears.

This wasn’t an easy conversation.  As is often the case, husband and wife have different priorities and have never really discussed them.  However, putting everything on the table, Gavin and Jenny were very accepting about what the other wanted.  We’re told that some of the most honest conversations partners have, occur in our offices.  It’s just about asking the right questions.

And here’s the good news for Gavin and Jenny. “Not only can you retire, but you can retire right now, with high confidence your portfolio can provide for you.”

The look on Gavin’s face says it all, “Thank you!”

Jenny looks at Gavin, genuinely pleased with how happy he is, “But how?”

Ah, let’s explain that…in our next article.


Note: Gavin and Jenny are a fictitious couple but are based on the experiences of many clients we work with.

If you’d like discuss your retirement plans with BWT Financial, please click here to arrange an appointment.