The equity difference for retirees
Retirees need a different equity allocation to accumulation investors, according to Martin Currie, if they want to maintain a ‘sufficient income for life’.
In a research paper, the firm said the notion of sufficient income for life relied upon income volatility as a measure of risk of impaired living standards in retirement, rather than asset return volatility.
This meant sustainability of income, future income growth and diversification of income sources were important considerations for retirees. Sufficient income for life also focused on achieving a high and stable franked income stream to support annual expenses, income growth for inflation protection and capital growth to manage longevity risk.
When selecting funds, retirees should consider issues such as a focus on high quality companies, benchmark-unaware construction, maximising franking credit and the inclusion of inflation drivers designed for Australian retirees.
Reece Birtles, chief investment officer at Martin Currie Australia, said: “Retirees require a reliable income stream to replace the wages they received when they were working, so it is more important to focus on the actual dollar income generated over time, rather than the headline yield percentage.
“The old view of the economic behaviour of retirees that most existing multi-asset retirement products assume is that when people get to 65 they automatically become more risk averse and should move away from risky, growth-style assets and move towards defensive assets. We do not agree.
“So-called low risk defensive assets have turned out to be low growth with high income volatility over the past decade.”
Recommended for you
Following an extraordinary general meeting today, Dixon Advisory parent company E&P Financial Group’s shareholders have voted on its proposed delisting from the ASX.
While overall financial adviser numbers have dipped below 15,500 this week, Rhombus Advisory is experiencing growth and approaching 500 advisers in its ranks.
Iress’ Xplan continues to dominate the financial planning software market with a multitude of uses, according to Netwealth research, despite newer players battling for a piece of the pie.
ASIC has shared the percentage of breach reports related to financial advice in FY24, noting increased reporting by smaller AFSLs.