15 November 2017

John Barton

Director & CEO

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Wealth and health are two topics that many of us flat-out prefer a comfortable level of ignorance compared to the often inconvenient, and sometimes confronting, truth.

What am I getting at? Well, my point is that most of us tend to avoid, put off and defer the assessments and actions that will actually get us where we want to get. However, getting there will, in most cases, require a level of inconvenience – and many of us simply prefer the comfort of assuming all will be well rather than face a little inconvenience along the way.

To explain, let’s begin with the end in mind. What is it that most of us actually want? Well, most us want to lead a long, active, healthy life with bank balances and cashflows that give us options, a level of freedom and a comfortable, relatively stress-free lifestyle. Whilst our personal definitions of ‘active’ may differ, and our personal definitions of ‘comfortable lifestyle’ will definitely differ, broadly speaking, these goals are true for most of us.

If this is the case, then what’s the best course of action to achieve this? What do we have to do to give ourselves the best possible chance of reaching these goals? Well, on the health front, could we agree that exercising regularly, eating a balanced diet and consulting an appropriate doctor from time-to-time to ensure we are on track and to help us deal with any unforeseen roadblocks along the way would be a good start? Yes? Yet many of us defer, delay or simply avoid one or more of these relatively simple actions.

On the wealth front, could we equally agree that saving regularly, building a diversified investment portfolio, ensuring sensible and effective insurances are in place and consulting an appropriate professional adviser from time-to-time to ensure we are on track and to help guide us through the complexity of changing regulations, life-stages and investment markets would be a good start? Yes? Yet, many of us defer, delay or simply avoid one or (in most cases) more of these relatively simple actions.

We put off joining the gym, we sleep-in rather than going for that ride or run. From time-to-time we over-indulge. When it comes to our finances, we delay any serious attempt at saving and investing by relying on our employer superannuation contributions or because we’re sure we’ll receive a sizeable inheritance or we’ll sell a business or speculative asset for a sizeable gain one day (hopefully). In terms of insurance, we’d rather roll the dice and keep the cash in our pocket today rather than underwrite our family’s future just in case something unfortunate happens across our path.

All of this we do in a state of relative comfort – enjoying our day-to-day lives, dealing with the inevitable stuff that life throws our way and generally just getting on with things. Unfortunately for us, what works in the short or even medium term, often does not work in the long term.

Did you know that, as a working Australian, you have a more than 60% chance of being disabled for more than 1 month during your working life and a 1 in 3 chance of being disabled for more than 3 months1? The risk of being diagnosed with cancer before the age of 85 will be 1 in 2 for males and 1 in 3 for females2. In 2014-15, more than 11 million Australians had at least one of eight selected chronic diseases, which are the leading cause of ill health and death in Australia3. One third of deaths in Australia are considered premature (i.e. before the age of 75)4.

These numbers are not hypothetical. I recently met a 38-year old mother of 2 children under two-years of age whose husband suddenly and unexpectedly died of a sudden cardiac arrest. He was a fit and healthy 40 year-old with no significant risk factors and no medical history of heart problems. Putting aside the obvious and acute emotional issues confronting someone in this situation, the financial aspects are by no means insignificant. People in this situation only rarely have adequate protection in place, if they have any material cover at all. In this case, more than $1million of cover was in place, however, given the typical levels of debt involved, $1million is far from sufficient to ensure a financially stress-free future. For want of some advice and a couple of thousand dollars in annual premium, the story could have been very different.

The same is true when it comes to investing. You’re doing well, you’re earning good money and you’re enjoying your lifestyle. You feel bullet-proof. You’re sure you can continue earning well for many decades yet. But can you? Even if you stay well your entire working life, you’re going to need 20-plus years of disciplined savings or a major capital event later in life to ensure you the sort of comfort in retirement you’re hoping for. The simple fact is that most Australians do not achieve the level of retirement independence they expect — or hope for. Every day, week, month and year that you defer a proper assessment of your retirement planning needs, the harder the task becomes.

So, back to our goals. What does it take to achieving that long, active, healthy life with bank balances and cashflows that provide options, freedom, comfort and a relatively stress-free lifestyle? Firstly, make a commitment that you will take at least one step today - not tomorrow, today – to start building an action list that you can work through in the coming weeks and months. Be honest with yourself as to why you haven’t implemented these action items yet, or perhaps did but let them fall by the wayside. On this list, include speaking with a professional adviser to work through some scenario planning with you. Scenario planning is a powerful tool for understanding nuances of possible future outcomes for you and your family. For example, how would your finances (and your life) look if you pay off your home sooner, or if your income grows faster than you expect for the next 10-years (or slower)? How would it look if you sell your business in 5-years for X, or in 10-years for Y, or if you borrow $800,000 for your home upgrade versus $1,000,000? What about if you enjoy an overseas holiday every five years, rather than every two years?

I guarantee nothing will help you understand the importance of having a plan in place (ideally a flexible plan that allows for the vicissitudes of life) more than working through some sensible scenarios in real-time with an appropriately qualified adviser. It certainly could be the best few hours you invest in your future – and a great way of moving away from ignorance whilst staying comfortable.

Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.

 

1Interim Report of the Disability Committee Institute of Actuaries of Australia 2000
2Cancer in Australia, an overview, Australian Institute of Health and Welfare, 2014-2015
3Australia’s health 2016, Australian Institute of Health and Welfare, 2016
4Health conditions, disability & deaths, Australian Institute of Health and Welfare, 2017