For a stable and secure retirement, I think retirees need a few different assets to help things go smoothly.
Our golden years will hopefully be the best years of our lives, and our nest egg is probably one of the most important elements for funding our living expenses after we stop working.
The ASX share market is regularly volatile, so that shouldn't come as a surprise to anyone. However, real-life downturns and recessions can occasionally happen.
The retirement phase may last decades, so it's crucial to be well-prepared for whatever may happen and how long we may live.
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An emergency fund can protect retirees
I believe every adult in Australia should have an emergency fund. We never know when an emergency will happen, so having that financial foundation can be useful if an issue arises. For young Aussies, I'd suggest having at least $1,000 in a high-interest savings account, and for the breadwinners of a family, I'd suggest having three to six months of living expenses as cash.
Retirees need to have cash saved to ride out a downturn. Selling assets such as ASX shares during a period of falling share prices could be very detrimental to the nest egg fund.
Financial planners can help figure out how much a retiree should have as cash set aside, but I'd suggest an amount equivalent to at least a year of living expenses, perhaps up to two years, if the savings account is earning a good interest rate.
On the ASX, there is an exchange-traded fund (ETF) called Betashares Australian High Interest Cash ETF (ASX: AAA). This ETF allocates money into deposit accounts with selected banks in Australia. It pays interest monthly at a rate that's competitive with 'at call' bank deposits. However, an investment in this ETF does not have any government guarantee. The current interest rate on the AAA ETF is 4.45%. This ETF may appeal to investors with significant cash balances or non-individual entities.
Growing investments
The other ASX investment that I think every retiree should have is investments that are growing.
We may need our portfolios to last a really long time, perhaps three or four decades. In the last three years, we've seen how inflation can degrade the value of a dollar, and the costs of various products and services have jumped significantly. Protecting against long-term inflation is a good idea.
I like the idea of investing in assets that can deliver long-term growth without us having to worry about or monitor them, which is often why diversified ETFs can be so appealing. However, some ETFs don't offer an adequate level of passive income due to their dividend yield or dividend growth.
Some of my favourite investments for dividend and earnings growth are Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW), and Collins Foods Ltd (ASX: CKF).
Of course, ETFs like Betashares Global Quality Leaders ETF (ASX: QLTY) and VanEck MSCI International Quality ETF (ASX: QUAL) can be very effective, too; they just don't have large dividend yields.
