A smart retirement portfolio helps to manage and mitigate risk and ensures clients’ savings work hard at every stage of retirement. As with any astute investment approach, tapping into diverse sources of retirement income is key when it comes to balancing risk and return. After a lifetime’s work, peace of mind is a reasonable expectation in retirement.
Accumulating as much as possible in superannuation (and other investments) is only part one of the retirement challenge and Australia’s $3.5 trillion retirement system has deservedly garnered world acclaim. Super continues to provide workers with a growing pool of tax-effective savings set aside to finance their life in retirement.
However, it can be challenging to plan for the future when there’s uncertainty around how long clients will need a regular income to fund their lifestyle. What if they need access to capital to meet unplanned health or aged care needs, or fund other ‘lumpy’ expenses? How could drawing on this capital affect their future income?
For Australians to have the confidence to spend and thrive in retirement, they need retirement income certainty and access to capital.
Unfortunately, the investment strategies and products that have served so well to accumulate assets via super don’t necessarily provide the kind of financial certainty Australians expect for their retirement years. As Australia’s demographics shift, today’s retirees face unique challenges. The tools, products and strategies that retirees have relied on for decades need to be optimised for a future in which people live longer and every dollar has to be stretched further.
Rather than having to shoe-horn retirement into existing products to get the ‘best possible’ outcome, what if there was an innovative solution that could provide retirees with the capital protection, flexibility and income certainty that most existing products don’t deliver?
Imagining the retirement products of the future
While superannuation funds and other financial services firms have focused primarily on the accumulation phase, the development of innovative retirement income products has been slow. A 2022 Actuaries Institute report[1] noted that combining traditional products with innovative solutions could lead to a remarkable 30 percent increase in retirement income.
Further, the report noted that methods such as using investment-linked lifetime income streams have been shown to lift retirement income without increasing longevity risk. This is a win-win outcome that would see Australian retirees benefit from larger payments and a better quality of life without increasing the likelihood of outliving their savings.
So, what will the next generation of retirement products look like? They will improve further on the earlier efforts with outcome oriented solutions designed around core features that include:
