Life after accumulation: Vanguard launches suite of retirement research
Vanguard | 23 August 2018
Vanguard today launched a new suite of research aimed at helping Australians plan for a comfortable retirement.
Vanguard's Investment Strategy Group has developed tools which can assist investors and their advisers compile a comprehensive retirement plan, and execute a sensible spending strategy, to ensure income endures throughout their retirement years.
The research spans three new white papers:
- Vanguard's Roadmap to Financial Security: A framework for decision making in retirement.
- From assets to income: A goals-based approach to retirement spending.
- The role of the age pension in your retirement plan.
At a launch event held in Sydney today, Paul Murphy, Vanguard's Senior Manager for Government Relations & Industry Policy said, "While a major focus of the industry remains on the pre-retirement accumulation of wealth, and the policy and regulation that surrounds this, what can get lost in the debate is that the superannuation industry ultimately exists to provide income in retirement."
Mr Murphy explained why the post retirement experience can mean greater uncertainty for people due to the move to a much less structured financial state than what they are accustomed to in the accumulation phase with mandated contributions and default settings.
"It's a big shift from pre to post retirement with greater uncertainty perhaps explaining why research is showing some retirees are leading overly frugal retirements," said Mr Murphy.
Nathan Zahm, Senior Investment Strategist and research co-author said, "With population and life expectancies of retirees in Australia rising while portfolio yields remain at historically low levels, the need for retirees to implement an informed retirement plan is more critical, and yet more complex than ever.
"A myriad of challenging decisions and trade-offs stand between a retiree and a financially secure retirement, and knowing where to start can be overwhelming.
"There's no universal route to financial security in retirement, but there are common steps in the journey and this collection of resources empowers retirees through their own journey, which should lead to greater confidence in their ability to meet retirement goals."
Vanguard'sroadmap to financial security: A framework for decision-making in retirement, details a four-step process that allows retirees to capture their unique priorities and use their financial resources in a way that best aligns with achieving their goals and mitigating their risks.
"The framework provides foundational knowledge about the goals, risks and resources individuals will need when planning for their retirement, and it can be applied regularly throughout retirement and adjusted when necessary as needs and circumstances evolve," said Mr Zahm.
From Assets to Income details a new spending rule developed by Vanguard, which combines aspects of two popular spending rules - the dollar plus inflation rule and the percentage of portfolio rule - to allow retirees to benefit from good markets by spending a portion of their gains, while weathering bad markets without a significant reduction in spending.
The final paper, The role of the age pension in your retirement plan, reviews the basic rules of the age pension and what retirees should take into account when considering pension entitlements in conjunction with their superannuation to meet their retirement spending needs.
Discussing the paper, Mr. Zahm emphasised the value of the age pension, and its importance in retirement.
"For many Australian retirees, the age pension is a meaningful portion of their retirement income and should be considered as part of the retirement planning process.
"If we assumed that the age pension did not exist, single and coupled retirees targeting the ASFA Comfortable Living standard would need roughly $400,000 or $700,000 respectively, in additional financial assets.
"Achieving financial security in retirement may be a universal goal, but there's no universal way to get there. The right strategy for investors will be determined by their individual circumstances," Mr Zahm concluded.
The new research papers can each be found on Vanguard Australia's website.
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