Practical and educational, our perspectives focus on investment issues relating to constructing retirement portfolios. Published regularly, they aim to assist financial advice professionals discuss retirement issues with their clients.
The Role of Annuities in Retirement Portfolios
In recognition of the growing challenges facing retirees, Lonsec has published a paper on the role annuities can play in retirement portfolios. The paper explores some of the common issues facing retirees such as sequencing risk, longevity risk and market risk.
Mortality Credits: A Primer
Mortality credits are a potentially valuable source of return for longer-lived retirees. They rely on pooling between survivors and other investors, such as those who surrender their contract or those who die early.
This paper analyses the potential mortality credits available in a range of annuity products, and illustrates the importance of understanding annuity product features, such as liquidity conditions, as these have a material impact on investor returns.
The Retirement Mirage
“How much can I spend?”
This question lies at the heart of so many conversations between a retiree and their adviser. Although not explicitly stated, this simple question ties in to so many other related concerns. This paper aims to identify the drivers behind retirees’ craving for certainty, and how the financial advice industry can help address this issue, either through product or through strategy.
Age Pension Series:
Effect of the Age Pension on Total Income
As discussed in previous papers in the Age Pension Series, changes to an individual’s circumstances or goals can dramatically impact their underlying strategy and ultimately, the value and importance that the age pension will have throughout the length of their retirement.
Market Volatility and Risk Control in a Retirement Portfolio
‘What if’ questions always seem to take up most of our thinking when building investment portfolios. Over the last few years though we seem to be asking the same question – what if markets pull back? As there is absolutely no way of predicting the correct answer to this question, as investors we need to assess our portfolios and instead ask ‘are we prepared?'
Age Pension Series:
Introduction to the Age Pension
The age pension can be considered to be the perfect retirement income product, and incorporating the age pension as part of a holistic planning exercise is a fundamental component of a goals-based advice process.
This paper is the first in the Lonsec Retire Age Pension Series, which will explore the age pension in the context of retirement portfolios.
Age Pension Series:
How Much is the Age Pension Worth?
The value of the age pension can vary considerably depending on the assumptions made, such as the volatility of future investment returns and variability in future inflation. Although allowing for these factors complicates the analysis, they are essential in producing a realistic analysis of a client’s potential retirement experience.
Understanding sequencing risk
The first lesson of Investment 101 is that the secret to successful investing is ‘time in the market’ not ‘timing the market’. However, following the events of the global financial crisis (GFC) and the impact of poor market returns on newly and near retired investor portfolios, the impact of sequence-of-returns risk, or sequencing risk, has been under the spotlight.
Understanding longevity risk
Longevity risk, or the risk of investors outliving their retirement savings, has gained increased attention over recent years. The issue of longevity risk has been accentuated by significant investment market events, such as the recent Global Financial Crisis (GFC). Such market shocks can have a material impact on the asset value of market linked pensions, as investors continue to draw down their pension during these periods.
The politics of pensions
Pension systems across the globe face major headwinds that will weigh heavily on governments, policy makers and members of the public. Demographic pressures, the increasingly small world of a global financial economy and government promises of retiree benefits and services are coalescing to place retirement policies at significant risk in the years ahead. How governments respond to these pressures will have a major effect on the future of programs that support workers in retirement.
The risks of chasing yield
In today’s world, achieving a return on principal rather than return of principal is more risky than it used to be. With the dramatic fall in interest rates around the globe, the pressure has been building on investors to focus on cash flow requirements instead of total return, as they become increasingly concerned with not being able to generate enough income to supplement their lifestyle.
Income in retirement - the pros & cons
This article focuses on the income objective in retirement and explores asset classes and investment structures commonly used to generate retirement income, outside of the age pension. The aim of the paper is to assist financial planners in understanding the key advantages and risks associated with each strategy.
Risk control - a product perspective
A core element of an objectives based retiree portfolio is the allocation to risk control strategies and products that are designed to assist in controlling the key investment risks that are relevant to retirees, including sequencing risk, inflation risk and longevity risk. This article examines the strategies available to investors which help manage these risks.
The Chart Pack contains tables and charts which discuss concepts commonly encountered when advising retiree clients.