In my 25 years of providing financial planning advice, I have come to realise that one of the greatest financial retirement risks facing pre-retirees is boredom.
Let me provide an example.
I recently met with husband-and-wife clients who are in their 60th year and have undertaken all of the hard work you expect of clients at their age. They have brought up their children – who are now financially independent -, paid their mortgage down and started to build a reasonable nest egg. Like most couples their wealth building has been a recent phenomenon – 50% of wealth is usually accumulated in the last 10 years of your working life – and they are well on track to meet their retirement goals.
I was therefore surprised to hear that they were considering buying a holiday home. They were thinking they would like somewhere to escape to on weekends and holidays and somewhere the kids could use.
We discussed this for some time and they finally changed their minds when I explained that holiday homes have a number of downsides:
- They usually aren’t a good investment – located in seasonal areas – and like all property are subject to real estate risks.
- They need looking after so you end up having two homes to clean, maintain and garden.
- They are il-liquid paying little income in retirement (if they are rented out) and you can’t draw on the capital invested in them if you need.
- They lock you in to going back to the same holiday location all the time rather than finding more exotic places to visit.
When we had finished that conversation, they then raised the prospect of buying a business. These clients were highly skilled very intelligent professionals. They were contemplating walking away from good careers to buy a B&B business in the country.
I then explained some of the pitfalls of going into business:
- It is very easy to underestimate what a lack of experience in an industry or business can cost you. If you have worked all of your life as a teacher then buying a restaurant is a high risk. An experienced restauranter will know how many staff you need per table, how thick to cut the steak to ensure the client is satisfied and the margins are adequate, how to stop staff form drinking your profits etc. This knowledge is usually gained after many years of experience. Intellect does not trump experience.
- These clients are earning very good money, it would be unlikely that they could replace that income without a substantial investment in a new business.
- Businesses are a 7 day a week occupation. Even if it is open for less than 7 days a week, it is always on your mind.
- It takes 20 years to become an overnight success. Starting a business at 60 is optimistic.
After they had conceded that buying a business was a poorer idea then a holiday home, I asked why they had come up with these ideas. The answer was “we are bored”.
In my experience this is more common than most people realise. While bringing up kids, paying a mortgage and putting food on the table are stresses they are also adrenalin creating. When those stresses are removed the adrenalin drops and boredom sets in.
How do you avoid the boredom?
The main cure is to have some clearly defined goals to achieve. Personally, I use travel. Planning a significant holiday every 18 months gives me enough time between trips to get organised and not enough time to get bored.
Boredom is a very real risk, any good financial plan will recognise this and include bored breaking goals.
The case study is illustrative only and does not account for investment returns you will receive or fees and costs you will incur.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider you financial situation and needs before making any decisions based on this information. It is recommended you contact your tax and super professional for advice.
Blueprint Planning Pty Limited (ABN 78 097 264 554) trading as Blueprint Wealth. Authorised Representative and Credit Representative of AMP Financial Planning, Australian Financial Services Licensee and Australian Credit Licensee.