Aaron Minney
Building robust inflation defences into client portfolios is a key consideration of advisers in the current climate. That’s according to a new report by the leading digital platform for financial advice professionals, Ensombl, and retirement income specialist Challenger.
The report, Practical strategies to mitigate the impact of inflation risk on retirement incomes, showcases a range of adviser case studies, revealing how financial advisers are using a combination of client-driven lifestyle changes, asset allocation and product strategies to tackle inflation for clients who are retired or approaching retirement.
Challenger’s Head of Retirement Income Research, Aaron Minney said for Australians in – or approaching – retirement, the outlook for 2023 remains challenging.
“Inflation, which had long been forgotten, is today an insidious risk for retirees. With an annual inflation rate running at more than 7%, it erodes retirees’ spending power, tempting some to draw down additional savings. While volatile investment markets also present risks, inflation tends to amplify them considerably and is usually more enduring,” Mr Minney said.
“Inflation can have a particularly large impact early in retirement, when increasing drawdowns to cover rising costs can amplify other issues like sequencing and longevity risks.”
Ensombl CEO Clayton Daniel said it is clear there are many different ways to mitigate the impact of inflation on retirement income, which generally fall into one of three high-level categories.
“To the extent that every retiree’s circumstances are different, the specific responses and strategies being employed at an individual client level are both many and varied,” Mr Daniel said.
“However, after speaking to financial advisers around Australia, it is clear that managing inflation risks will require clients to consider reducing or deferring living costs, while revisiting their retirement strategy – the products and assets they invest in.”
The report and associated case studies have been published on an interactive website developed by Ensombl and Challenger to support financial advisers engage with clients about the impact of inflation on their retirement income and the options available to mitigate it over the long term.
“It is essential advisers are equipped to help their clients navigate a path that optimises both their income and the longevity of their investments,” Mr Daniel said.
“Launching the online resource centre was a priority to support advisers as they work with retirees and those considering retirement who are justifiably anxious about the vulnerability of retirement incomes to rising living costs.” Challenger Limited A.B.N 85 106 842 371. Disclaimer: The forward-looking statements, estimates and projections contained in this release are not representations as to future performance and nothing in this release should be relied upon as guarantees or representations of future performance.
