Financial Plans for Baby Boomers: How Much Risk?*

Authors


  • *

    An earlier version of this paper was presented at the Financial Integrity Research Network’s Symposium on Superannuation and Retirement Planning, Sydney, 25 November 2008. The author thanks the symposium participants, along with Andrew Hingston, Adrian Pagan and Carol White, for helpful comments on earlier drafts. Students in the Superannuation and Retirement Benefits course at the University of New South Wales came up with shrewd comments on a lecture notes version of this paper. Two anonymous referees made constructive comments on a subsequent version. The Australian Research Council helped in funding this research. The author retains the responsibility for this paper.

Geoffrey Kingston, Department of Economics, Macquarie University, North Ryde, NSW 2109, Australia. Email: gkingston@efs.mq.edu.au

Abstract

In June 2008, the Financial Planning Association issued an “example” financial plan. The hypothetical clients are John and Joan, a married couple. The plan would reduce the couple’s tax bill from $38,000 to $22,941 per annum, a good outcome. More questionable is a recommendation that the percentage of financial assets invested in growth assets be raised to 70 per cent. An aggressive asset allocation could well suit if the couple were aged either 37 or 77, but John and Joan are 57. The long investment horizon faced by the couple is actually a reason for caution on the cusp of their retirement.

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