{"id":1361,"date":"2017-10-23T20:47:00","date_gmt":"2017-10-23T09:47:00","guid":{"rendered":"http:\/\/www.gpadviser.com.au\/gpl-theme-1-2015\/2017\/10\/23\/setting-up-for-retirement-success\/"},"modified":"2017-10-23T20:47:00","modified_gmt":"2017-10-23T09:47:00","slug":"setting-up-for-retirement-success","status":"publish","type":"post","link":"https:\/\/www.gpadviser.com.au\/gpl-theme-1-2015\/2017\/10\/23\/setting-up-for-retirement-success\/","title":{"rendered":"Setting up for retirement success"},"content":{"rendered":"

Benchmark\u00a0<\/em>magazine interviews Brian Long, Head of Retirement, NAB Asset Management<\/p>\n

Brian, most Australians save for their retirement through our mandatory superannuation system. \u00a0Do you think this will be enough?<\/strong><\/h3>\n

\"\"<\/strong><\/p>\n

Obviously what people want for their retirement will vary from person to person. It depends on your age, the type of lifestyle you want and the wealth you have inside and outside of super. The super system only started in 1992 at relatively low contribution levels so many older workers may have low balances which possibly won\u2019t be enough to completely fund their retirement. However, all things being equal, younger generations should arguably be in a better position to self-fund retirement at the current super guarantee rate of 9.5% which is set to rise to 12% by 2025. But the sooner they start planning, the better.<\/p>\n

There are many views on how much you need to retire and the Association of Superannuation Funds of Australia (ASFA) suggest $545,000 if you\u2019re single and $640,000 if you\u2019re a couple.1<\/sup>\u00a0However NAB recently did a survey and found most people felt they needed between $700,000 and $1.1million.2<\/sup><\/p>\n

I don\u2019t think people should be focusing solely on their super balance. Instead I think the real question is, what lifestyle do you want? Look at your total wealth, including assets outside of super and your eligibility for the Age Pension. For people with modest balances that don’t have a lot of assets outside of super the Age Pension remains an important pillar in the retirement system.<\/p>\n

And for younger people who have time on their side, the earlier they start engaging with their super, the better the outcome they could have.<\/p>\n

So what\u2019s a good rule of thumb for how much people will need to spend in retirement?<\/strong><\/h3>\n

Again, this very much depends on the lifestyle you want. In general your spending will be a percentage of the after tax earnings that you had while working.3<\/sup>\u00a0There are also a few guidelines you can look at. For example ASFA believes, to be comfortable, a typical couple will need about $60,000 a year.4<\/sup><\/p>\n

We often tell clients that, in our view, there are three broad stages of retirement, and you\u2019ll typically spend differently during each stage. Firstly there\u2019s the active stage when you first retire and you spend more because you might be renovating your house, taking holidays and being active in your hobbies. But then you settle into a simpler lifestyle where your costs are usually less. And finally you have a supported lifestyle where your expenses support your health and assisted living.<\/p>\n

Life expectancy for women is 88 and men 85.5\u00a0How does this help people understand how much super they\u2019ll need, and how much income they can take each year in retirement?<\/p>\n

People want to have a stable level of income in retirement, so being able to estimate life expectancy is really important. In the 1980s life expectancy at retirement was to about 74 years, but now, if you\u2019re a male it\u2019s 85 and 88 if you\u2019re female. If you\u2019re a couple, there\u2019s a 33% chance that one of you will live to age 94.5<\/sup>\u00a0And it\u2019s really important to recognise that 50% of people live longer than these averages.5\u00a0So while statistics are a good starting point, you can\u2019t assume that they will necessarily transpire in your own individual circumstance. The challenge that we have as a nation is that the vast majority of our retirement funds tend to be in account based pension products, meaning you have to estimate how much you can take out each year, while ensuring you have enough to last a lifetime. So planning becomes critical.<\/p>\n

There is also a lot of discussion at the moment on the role annuities and other longevity products play in providing income for people who expect to have long healthy lives.<\/p>\n

A lot of people lost large amounts of their retirement savings when the global financial crisis hit 10 years ago. What advice can you give people who are planning on retiring in the next few years, to attempt to mitigate the risk of a large market fall?\u00a0<\/p>\n

It\u2019s important to keep the majority of your retirement savings invested in a diversified portfolio, as a significant amount of the income you earn in retirement is produced by your saving balance at retirement. However, a fall in the value of your super around the time of retirement\u00a0is, understandably, a retiree\u2019s biggest fear \u2013 you\u2019re not contributing anymore and you\u2019re having to take out money at the bottom of the market, forcing you to potentially crystallise losses.<\/p>\n

Between 55 and 75 years, when your super balance is typically at its highest, it\u2019s particularly important to try to mitigate this risk and the financial services industry is working hard to assist retirees with this problem.<\/p>\n

From an investment perspective there are a few solutions that are helpful in managing this risk. Bucket strategies aim to keep people invested when the market goes through a difficult time by having a portion of their money allocated to cash. There are products that have the flexibility to adapt asset allocation as needed.<\/p>\n

This means your clients\u2019 investments are continually positioned to attempt to manage the risk of large losses and attempt to deliver real returns in a range of market conditions. Plus, there are products that provide a level of protection for a fee from negative returns or provide you with a stable level of income.<\/p>\n

It\u2019s important that investors work with their adviser who can tailor these investment solutions to meet the client\u2019s specific goals. So it\u2019s best to talk to your adviser if you\u2019re worried about this risk.<\/p>\n

Is there a single product that Australians can invest in once they retire, that will help to manage these risks you\u2019ve talked about?<\/strong>\u00a0<\/h3>\n

That\u2019s a good question, but the short answer is no. As we\u2019ve discussed, everyone has different expectations about their retirement and different views on the amount of risk they\u2019re prepared to take, so there\u2019s no silver bullet. The industry is working hard to develop more longevity products (products that will give you an income for life) and better account based pensions, but I think retirement is a lot more complex and it\u2019s likely we\u2019ll see it\u2019s a combination of products that are needed to meet people\u2019s needs.<\/p>\n

Retirement products are constantly evolving and new ones are available all the time, for further assistance or information please contact us on |PHONE|<\/p>\n

Source: MLC 18 October 2017\u00a0<\/a><\/p>\n

1. \u2018ASFA retirement standard\u2019, June quarter 2017. Based on figures for couples and single female retirees aged 65-85.<\/p>\n

2. \u2018MLC quarterly Australian wealth behaviour survey\u2019, MLC, Q1 2107.<\/p>\n

3. The OECD for example suggests a replacement rate for a median income earner of 70% of final earnings. \u2018OECD private pension outlook\u2019, 2009.<\/p>\n

4. ‘ASFA retirement standard\u2019, June quarter 2017.<\/p>\n

5. \u2018Australian life tables 2013 \u2013 2015\u2019, ABS.<\/p>\n

Important Information<\/span><\/strong>
This publication is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705) (MLCI) a member of the group of companies comprised National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686), its related companies, associated entities and any officer, employee, agent, adviser or contractor therefore (\u2018NAB Group\u2019). Any references to \u201cwe\u201d include members of the NAB Group. An investment in any product or service referred to in this publication does not represent a deposit or liability of, and is not guaranteed by NAB or any other member of the NAB Group.<\/span><\/p>\n

This information may constitute general advice. It has been prepared without taking account your objectives, financial situation or needs and because of that you should, before acting on the advice, consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs.<\/span><\/p>\n

Past performance is not a reliable indicator of future performance.<\/span><\/p>\n

The value of an investment may rise or fall with changes in the market.<\/span>
Any opinions expressed in this publication constitute our judgment at the time of issue and are subject to change. Neither MLCI nor any member of the NAB Group, nor their employees or directors give any warranty of accuracy, not accept any responsibility for errors or omissions in this publication. Any projection or other forward looking statement (\u2018Projection\u2019) in this document is provided for information purposes only. No representation is made as to the accuracy of any such Projection or that it will be met. Actual events may vary materially.<\/span>
If any financial products are referred to in this publication, you should consider the relevant product disclosure statement, financial product guide or other disclosure material before making an investment decision in relation to that financial product. A copy of the relevant product disclosure statement, financial product guide or other disclosure material is available upon request by contacting our call centre on 1300 738 355 or on our website at nabam.com.au<\/span>
MLCI relies on third parties to provide certain information and is not responsible for its accuracy. MLCI is not liable for any loss arising from any person relying on information provided by third parties.<\/span><\/p>\n

This information is directed to and prepared for Australian residents only.<\/span>
MLCI may use the services of NAB Group companies where it makes good business sense to do so and will benefit customers. Amounts paid for these services are always negotiated on an arm\u2019s length basis.<\/span><\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

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