Summer Series, Guest Editor, Jeremy Cooper

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Retirement is different

As Cuffelinks celebrates five years of publishing, I have chosen five of my favourite articles over that time, all of which deal with the ‘retirement income challenge’ one way or another.

To illustrate what the articles were about, consider the example of the age pension. Age pension payments arrive every 14 days. They are exact in amount and unambiguously spendable. Twice a year, the payments are adjusted to ensure that they meet inflation, wage and living standard benchmarks, but are otherwise stable. The age pension is risk-free (from investment markets, although it is susceptible to policy changes) and lasts for life.

The Cuffelinks articles deal with the myriad issues that flow from the fact that the most common retirement-phase products have precisely none of those features.

The Yin and Yang of retirement income philosophies, written in conjunction with the American College’s Professor of Retirement Income Wade Pfau, outlines two schools of thought on the retirement income challenge: probability-based and ‘safety-first’. The safety-first approach is about securing essential spending needs in retirement, with room for more probability-based approaches for discretionary spending.

In the article, Three crucial mistakes about life expectancy, former Co-Chair of global consulting for Russell Investments, Don Ezra, pinpoints the common pitfalls that people make about life expectancy. People have difficulty understanding the arithmetic. Also, it is not just that we are living longer, but the fact that we don’t know exactly how long we will live that complicates retirement income planning.

Nobel Laureate Robert Merton picks up on the theme of income certainty in retirement. His thoughts were recorded by Alan Hartstein in Deriving an effective retirement income, following Merton’s visit to Australia in 2016. Merton argued that super funds need to focus on strategies that manage income risks throughout the retirees’ life. He characterised these as largely consisting of interest rate risk and inflation in the years leading into and in retirement.

Some super funds have woken up to this challenge. How VicSuper evolved its retirement income model was a timely piece from CEO, Michael Dundon, on how VicSuper implemented an income layering approach as a protection against longevity risk and sequencing risk. The approach involves identifying needs and wants and creating a secure layer of income above the age pension to meet essential spending needs.

We round out our retirement journey by looking at aged care. In a very personal account, Lessons from my Dad, in and out of aged care, Alex Denham provides a poignant and evocative window into the human impact of aged care and how even being a recognised expert in the area sometimes isn’t enough to avoid some of the pitfalls.

Importantly, this selection of articles highlights that genuine retirement income solutions must always have the end customer in mind. The authors consistently reinforce this reality, rather than getting stuck on investments and products that are just a means to an end, rather than the end itself.

Jeremy Cooper is Chairman, Retirement Income at Challenger Limited, former Deputy Chair of ASIC including Chair of a comprehensive review of Australia’s superannuation system (the Cooper Review).

A PDF version of this edition is available here.

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One Response to Summer Series, Guest Editor, Jeremy Cooper

  1. Pat January 5, 2018 at 10:31 AM #

    Hi Jeremy
    Thanks for retirement articles.
    I think that Alex Denham maybe interested in this as her father is in the “Frail Elderly Age Group”
    Dear Friends,
    I am sending this to all of you who are well over 80 and thus in the “Frail Elderly Age Group”, or are approaching it. Prof Hillman is an intensive care specialist who is deeply concerned that there is unnecessary pain and suffering being inflicted on the very elderly. In Australia you no longer can die from ‘Old Age’! The certificate must now show a medical cause rather than “Old Age” which is really due to a combination of deteriorating organs rather than just one of them giving up. Below I have copied part of the Introduction to his new book which should be read by those over 85.
    A Good Life to the End
    Taking control of our inevitable journey through ageing and death
    By Ken Hillman

    Here is an interview with Ken Hillman if you prefer to listen rather than read.

    http://www.abc.net.au/radionational/programs/lifematters/how-to-die-well-and-live-a-good-life-to-the-end/8701592

    From Australian statistics I can expect to have another 7 years with 2 or 3 in aged care. I plan to never again go inside an aged care home.
    I am preparing a few notes that maybe of use to you;
    ORGANISING THE FINAL PHASE IN YOUR LIFE
    1. Declutter to make it easier for your partner and family when you go.
    Have a bonfire to get rid of your, scientific papers, books, photos, letters, accounts, etc.
    Sell unessential furniture to a dealer the price is no longer a consideration.
    Give us much as possible to a charity shop and put the rest on the bonfire.
    2. Probably no need to buy new clothes and shoes.
    You will not have time to wear them out!
    3. Enjoy lots of wine and travel to interesting places before you are too frail.
    Now is the time to slowly empty your cellar as you will enjoy the wine more than those who clearing your house!
    You do not have much more time for travel without medical problems arising. Getting insurance for overseas travel becomes very expensive and most companies will not even give a quote. I have found that Southern Cross Travel insurance, http://www.scti.com.au is affordable and will even cover preexisting conditions.
    4. Also study

    God’s Plan For Aging.

    Most seniors never get enough exercise. In His wisdom God decreed that seniors become forgetful so the would have to search for their glasses, keys and other things thus doing more walking. And God looked down and saw that it was good.

    Then God considered the function of bladders and decided seniors would have additional calls of nature requiring more trips to the bathroom, thus providing more exercise. God looked down and saw that it was good.

    So if you find as you age, you are getting up and down more, remember it’s God’s will. It is all in your best interest even though you mutter under your breath.

    A Good Life to the End
    Taking control of our inevitable journey through ageing and death
    By Ken Hillman
    SBN: 9781760294816
    ISBN-10: 1760294810
    Published: 28th June 2017
    Publisher: Allen & Unwin
    https://www.booktopia.com.au/search.ep?keywords=a+good+life+to+the+end&productType=917505&suggested=L
    Introduction
    I have been warned that people will not read a book about ageing and dying as it is too depressing. But death loses its power over us when it is faced matter-of-factly. I believe it would be more depressing to become frail and be near the end of life surrounded by dishonesty and false hope. Knowledge about the true state of our health gives us control over our own life and related decisions.
    Anticipating your own end of life lifts the burden from relatives who would otherwise be forced to make crucial decisions about how you should be managed if, for example, you suffered serious brain damage and were destined to spend the rest of your life totally dependent on others. Relatives may make a decision based on reluctance to be seen as uncaring. They may have to live with feelings of guilt, no matter what they decide.
    ‘Hanging on to hope’ is sometimes raised during these discussions, followed by clichés such as ‘If you haven’t got hope then you have nothing left’ and similar platitudes. That’s fine, if there is real hope, but false hope can be destructive. There may be a place for positive thinking, but not at the expense of reality. People are encouraged to ‘fight’ terminal cancer, for example, the inference being that if they fail, they are losers. While it’s good to be positive and make the most of your life, denying the truth is not doing anyone any favours.
    In this book I focus on intelligent pessimism rather than false optimism. Pessimism is not fashionable. Politicians and the media spin the truth in order to paint reality in a more flattering light. Economists are eternal optimists. Medicine reinforces false optimism by only publishing positive results. Optimism is best experienced with a dose of scepticism. That is not necessarily pessimism.
    Many of us in western countries will spend their last days in an intensive care unit (ICU). I am an intensive care specialist—an intensivist. My career goes back to the early 1980s. As a specialist in a London teaching hospital, I was attracted by the logic and science of intensive care medicine. I had machines to measure and monitor everything and other machines to sustain life. The potential for prolonging life seemed infinite. I still experience the excitement of saving a life that otherwise would have certainly ended. But I also appreciate the satisfaction associated with orchestrating a good dying process—pain-free, with the patient’s dignity intact, and relatives who accept the dying process and are free to grieve in their own way.
    Rarely a day goes by when one of my colleagues in intensive care doesn’t quietly add a comment along the lines of ‘Please don’t ever let this happen to me.’
    My interest in the issues around end of life has been driven by the change in the population of patients we now manage in hospitals and intensive care units. Once they were relatively young, with life-threatening conditions that were potentially reversible, such as severe infections and trauma. Our specialty made many forms of complex major surgery possible. We now manage patients who have had major cardiac surgery and neurosurgery and who require life support for several days in order to recover. Almost imperceptibly, we began to treat older patients with many age-related conditions. If our machines could save the lives of young patients with otherwise fatal diseases, why not use them on older people? We used to reflect on whether we should be admitting patients who were over seventy years of age after major cardiac surgery. Many survived. Then we were admitting patients who were eighty, then ninety, and I’ve now managed a few patients who were more than a hundred years old.
    Age doesn’t necessarily determine survival, but we had overlooked the obvious. Many of the elderly we now treat have the same serious conditions as younger patients, such as trauma and infection, or need care after major surgery. However, their outcome and the course of their illness is determined not so much by these conditions but by the insidious effect that ageing has on the body; the collective accumulation of age-related and chronic conditions such as coronary artery disease, diabetes, dementia and osteoarthritis. When these conditions are combined with the general deterioration in every organ in the body, it leaves the aged vulnerable to diseases such as infection, cancer and even minor falls. All of these factors add up to something that, as yet, hasn’t a name or score. Increasingly, we are using terms such as frailty. In fact, we are just beginning to realise that the conditions which bring the elderly frail into hospitals are simply markers of someone who is nearing the end of their life. This is important to note, as it requires a different approach. Instead of admitting the patient to an intensive care unit for the last few days or weeks of life, we could be more honest with patients and their carers about the likely course of their health, allowing them to make choices about how they would like to spend their remaining time.
    This book does not present the Walt Disney version of ageing and dying; it is not about how to live longer, how cancer can be cured or how to avoid dementia. Rather, I will be straightforward in my description of ageing, its inevitability and its obvious relationship with dying and death. Like dying and death, ageing is about understanding and acceptance. You cannot accept what you don’t know and this book is an attempt to inform.
    The patient stories I have shared are based on real situations, though of course clinical details and names have been changed. These stories are not unique to my own experience. The same stories are told in most hospitals around the world. Hospitals are not skilled at recognising and dealing with people at the end of life. They exist to cure people, not to give up on them.

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