Through the managed accounts lens - Meeting retirement income objectives

With global populations ageing rapidly, and with one-in-four Aussies estimated to be over the age of 65 by 2050, there are tremendous opportunities for managed accounts to meet the specific retirement income needs of retirees in the years ahead.

This was one of the key takeouts from a panel discussion moderated by Nikko Asset Management Head of Product and Strategy, Hendrie Koster, and panellists Lukasz de Pourbaix (Chief Investment Officer at Lonsec) and Will Baylis (Multi-Strategy Portfolio Manager at Matin Currie).

However, de Pourbaix conceded that there were considerable challenges in building a retirement portfolio, which included addressing the three key risks in the drawdown phase: longevity risk, inflation risk and market (sequencing) risk.

“Building a portfolio designed for retirees, but being mindful of these risks, is complex,” de Pourbaix said. “There are three elements you need to be particularly aware of: income, risk control and growth.”

Baylis added that the dilemma retirees faced in their retirement portfolios was the chase for yield to generate an income, while safeguarding capital preservation.

“We have always advocated that a significant portion of a retirement portfolio should be growth, whilst being mindful of investment risks, to ensure that the portfolio is growing and so, provide a buffer against the retiree outliving their investments,” Baylis said.

“So, the weighting in an optimal retirement portfolio should be half growth and half defensive.”

De Pourbaix agreed, saying the industry needed to think more about developing products that provided steady cashflow to retirees, rather than purely income.

“When working with retirees in the de-cumulation phase, priorities for this sector shift. They are seeking income and specifically, cashflow, but are more sensitive to capital loss, which is challenging from a portfolio management perspective,” he said.

“The traditional thinking is that you should reduce your risk in retirement, but faced with the risks of longevity, sequencing and inflation, you are still going to need to generate growth in your portfolio.”

Increasingly, de Pourbaix said he was seeing a focus on retirement portfolios that had investment objectives and outcome-based solutions focusing on risk and return.

“While we are now seeing more products available in the market, we need to remember that products being all things to all people, tend to fail. So, it’s reassuring that we’re beginning to see more fit-for-purpose strategies coming to market.”

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