Advisers need to focus on ensuring retirees and pre-retirees have invested to adequately protect against longevity issues but also to ensure they maintain growth assets, according to one retirement specialist.
MLC retirement solutions general manager Andrew Barnett explained that one of the current dynamics is the falling cash rate supported by the expectation that the Reserve Bank of Australia (RBA) will reduce the cash rate by another 25 basis points to 2.75 in the first quarter of 2013.
“Over the last four years, investors have allocated around $250 billion to cash and term deposits, and with the falling cash rate I think advisers need to consider how best to invest that today,” Mr Barnett said.
“If you look at the long term, equities are volatile but they do tend to perform better than cash product over the medium durations.
“That said, I think advisers need to understand there are four competing objectives that retirees and pre-retirees have: growth, capital preservation, liquidity and longevity,” he said.
The industry, he said, doesn’t yet recognise how to concurrently analyse and understand the four objectives facing retirees. Investors are aware of the risks they face, but few are aware that they should still allocate to growth assets.
“There is no silver bullet and there is no product that solves everything, so it’s really about understanding the products they have access to and moving from asset allocation to product allocation and how much should be [where],” Barnett said.
He also explained that although the four key objectives have durability across time, the investment and advice strategies and products available are likely to develop over the coming year as investor attitude shifts.
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