Chief Investment Officer, ipac Investment Management
The need for a richer suite of retirement products
In this paper we discuss:
Designing appropriate investment strategies for retirees is more challenging today than it has ever been. In the past, nominal and real interest rates were higher while average life expectancy was shorter. Furthermore, a larger number of workers had defined benefit schemes which provided greater certainty over their final account balance and their ability to enjoy a comfortable retirement.
Today, it is a different story. Interest rates are at historical lows and we believe will remain so for years to come, life expectancy is longer and most Australians have modest superannuation balances at retirement. Therefore, in order to improve the likelihood of achieving their retirement goals, retirees need to accept market risk. To this end, most retirees with allocated pensions invest in traditional diversified strategies. However these strategies were originally built with an objective of wealth accumulation rather than consistency of income in retirement. These are two very different propositions.
The investment problem faced by a retiree withdrawing capital is quite different to that faced by an accumulator progressively contributing new capital. Given this, we suggest that there is scope to significantly improve financial well-being in retirement by implementing strategies specifically designed to better match the spending goals of retirees.
We believe that the starting point for any solution is a clear understanding of retirees’ goals and the relative priority attached to those goals. In addition, it is important to understand the flexibility a retiree may have to vary their spending and the withdrawals from their account. In retirement, “how you spend it” may be equally important as “how you invest it”.
Read the full report here.
Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.