With the availability of large pools of retirees, the law of large numbers will start to see a predictable distribution of lifespans around the mean, allowing for longevity risk products. An important development.
Tag Archives | Challenger
The National Seniors Australia (NSA) survey reveals that retirees want access to regular and stable income, even at the expense of lower returns. The need to preserve capital reduces tolerance of losses.
Life expectancies have increased dramatically since the nineties, but the uncertainty is forcing retirees to live too frugally. The super industry is switching its attention to the drawdown phase to find better solutions.
Loss aversion means some people avoid annuities because a premature death may lead to a loss of capital, but lifetime annuities with death benefits aim to address this problem.
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.
We need different tools to measure success in the retirement phase, as many people become dependent on the cash flow from their super fund. The defined contribution system has failed to keep pace with retirees’ needs.
It’s often assumed one of the primary aims of wealth accumulation is to leave money for the kids, but retirees realise their own longevity means they need to look after their retirement first.
The old investment rule that assumed the majority of retirement income would come from late-stage earnings no longer applies when returns are low, placing more importance on early accumulation.
Contrary to popular belief, there are significant variations in equity returns over long periods such as 20 years. Whether you will earn the ‘equity risk premium’ is far from certain.
A range of factors determine interest rates, and the yield curve reflects expectations of the future. Even if interest rates look low, waiting to invest is attempting to outguess the market.
The idea behind comprehensive income products for retirement, or CIPRs, is to provide retirees with a product that can generate a good income, manage risks and remain flexible. We need a scorecard to understand them better.
Many factors contribute to a lump sum bias among investors, and it might be one reason why they significantly overestimate how much a lump sum is worth in annual income for life.
Uncertainties about life expectancy and market returns are a challenge for retirement planning, and using averages may do more harm than good by disguising multiple possible outcomes.
Jeremy Cooper answers a question from one of our subscribers about the risk profile, regulatory standards and track record of lifetime annuities. If you have something to add, we invite you to join the debate.
I think the legislation based on the Cooper Review recommendations looks pretty good overall, although naturally, compromises have occurred. The big disappointment, though, is retirement.
The arithmetic mean of the annual returns of the ASX/S&P200 since 1980 is 13.9% per annum, while the geometric mean is 11.6% per annum. This is an annual 2.3% gap. Which returns have you been watching?