Planning for retirement when you are asset-rich/cash-poor – the liquidity question

When preparing for retirement, one of the common issues is matching lifestyle expenses with cash flow derived from investments. Financial priorities often change as people move into the retirement phase, such as more travel, car purchases, or funding education for grandchildren, requiring greater liquidity.

For those heavily invested in illiquid assets, such as property, having an asset-rich/cash-poor financial position may be a reality, particularly in today’s market, where rental yields may be lower. If you are in this position and nearing retirement, it’s critical to consider how you will create the cash flow you need for your retirement lifestyle. It’s a situation we often see at Apt Wealth Partners, so here are our tips for retirement planning when you’re asset-rich/cash-poor.

#1 Start as soon as possible

If you are in this position, you’re likely going to have to decide which assets to keep and which to sell. To maximise the financial outcomes, it’s best that you don’t have to do this under time pressures.

If you have seven-plus years to increase liquidity, you can do it strategically – making decisions based on your needs and market conditions to sell when the time is right. On the other hand, if you only have 12 months, you may need to sell based on your cash flow needs alone, regardless of whether it is a good time.

#2 Understand what you need to retire comfortably

When planning which assets to sell and which to keep, it’s important to understand your objectives for retirement and how sale versus continued income will impact your retirement goals. While there are sources out there, such as the AFSA Retirement Standard, that can provide some guidance on what you will need for retirement, it really is a personal thing, and there isn’t a generic equation that works for everyone.

Some areas to consider here are:

Retirement Lifestyle/Finances

• How much money will you need to maintain your current lifestyle in retirement?
• Do you have any big-ticket retirement goals you need to fund on top of everyday living?
• Are there any significant expenses you can see forthcoming (such as renovations/maintenance costs)?

Current Income Streams

• What are your current rental income streams generating?
• What could potentially affect income streams in the future, and how can you plan for this?

Future Income Streams

• If you need to sell assets, which are preferable to suit your objectives?
• What are the tax implications of these moves?
• How will you ensure your future income streams are sustainable?

This is where working with a financial planner can be invaluable, helping you navigate and plan for the future you want. Your planner should start by developing a deep understanding of you, your goals and your circumstances to build a bespoke plan for your retirement that ensures you have the right balance of cash and investments to create sustainable income streams.

#3 Plan for the tax implications  

Of course, when you sell off assets, there can be significant tax implications that may also affect your retirement funds. So, it’s important to get professional tax advice to minimise the impact on your financial position. There are many strategies that can help you do this, such as how and when you contribute to your super – but it’s important that you get advice from a registered tax agent.

At Apt, we work closely with your tax advisers to manage Capital Gains Tax, giving you an expert team in your corner to both meet your liquidity needs and keep you on track with your personal goals.

If you are considering how you will build the right cash flow and income streams to meet your retirement goals, get in touch with Apt Wealth Partners to stop thinking and start planning.

General Advice warning

The information provided in this blog does not constitute financial product advice or a recommendation to purchase a particular product. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners Pty Ltd is not a registered Tax Agent. You should consider your individual situation and seek tax advice from a registered tax agent before making any decision based on the content of this document. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.