Building resilient retirement incomes

For most of the past two decades research has confirmed what financial advisers already know – that as clients move into their mid-50s they become increasingly concerned about whether their superannuation fund balances will fund a comfortable retirement.

It is the fear of running out of money in retirement that has prompted many retirees to husband their balances so tightly that they actually die with the bulk of their savings largely untouched thereby leaving their children a substantial inheritance.

This much was recognised in the final report of the Retirement Income Review which noted that most people die with the bulk of the wealth they had at retirement intact.

“It appears they see superannuation as mainly about accumulating capital and living off the return on this capital, rather than as an asset they can draw down to support their standard of living in retirement. The family home is an underutilised source to support living standards in retirement,” the RIR commentary said.

It also noted that the nature of retirement had changed over the past two decades and that for many the transition from full-time work to permanent retirement has become gradual rather than abrupt.

Financial advisers know this and understand the need to ensure their clients appropriately understand the breadth of their wealth at retirement and that superannuation is just one component of that wealth.

The challenge for advisers is to help their clients change mind-set from accumulation to decumulation – helping them to adjust to the realisation that while they have a lump sum of money to last them for the rest of their lives, that is not the end of the equation and that they have options.

Allianz Retire+ Head of Technical Services, Justine Marquet says it is a case of clients understanding that they have options and that there exists a greater range of possibilities than those which existed five or six years’ ago.

“And it’s not just an interest rate story albeit that I know there has been media interest in annuities around interest rates,” she said. “It is about building in resilience.”

“We need to not only think about it when interest rates are high but look at pre-planning for retirement. What are we going to lock in to make a portfolio resilient.”

Marquet said that the answer for many clients was a multi-dimensional approach.

“…there is not just one solution there are all sorts of ways to do it and it’s not just a two strategy solution, either, you might choose a variety of income stream types to suit the client.”

She said this was especially the case where the client had a view about what their spending needs might be over the next 10 or 15 years but with advisers pointing out that those spending needs will likely be different to their long-term spending needs.

“Its all about individual planning rather than moving everyone into an account-based pension and hoping that will suffice.”

Content Partnership sponsored by Allianz Retire+