Women worried about their retirement funds: MLC

Ahead of International Women’s Day, MLC is raising awareness about the importance of superannuation and the amount of savings women will need in retirement.

Women retire with 40% less super than men which means too many women are risking a very basic lifestyle in retirement.  Additionally one in four women will have little or no super at retirement age.

MLC spokesperson Lara Bourguignon said this International Women’s Day MLC is encouraging women to take an active interest in their super to help overcome the retirement savings shortfall.

“While the issue is on the minds of most Australians, people are not doing enough about planning for their retirement, particularly women who have a larger savings shortfall than men,” Ms Bourguignon said.

“International Women’s Day is about empowering women financially and so it’s a great reminder for women to take some small steps today to make sure they have enough superannuation to last through retirement.”

MLC data about women and super shows:

• Australians are living longer – and women live longer than men (a 60 year old male is expected to live on average to 85 and a 60 year old female to 90)
• The average super balance for men in Australia is just under $300,000, but the average super balance for women is just $195,000
•  56% of Australians expect a financial shortfall at retirement and one third of women (36%) say they’ll have far from enough money at retirement
• Women retire with 40% less super than men as they take time out to care for children and their elderly parents, and often work part time
• Women experience significant economic inequality.  A young woman of 25 today will earn almost 50% less over her lifetime than a young man of the same age
• 47% of women are unprepared for retirement
• Almost half (45%) of women think they will struggle to make ends meet or just be able to afford the basic living expenses in retirement
• Just 35% of women have a formal retirement plan in place compared to 43% of men

Top tips for women to boost super:

• Awareness is the first step in taking action.  Take action today and don’t wait.  Think about the retirement lifestyle you want, how much you might need to retire on (use an online super calculator) and check out what your super balance is.
• Seek financial advice – find out how you can maximise and protect your super and how it complements your other investments like the family home.
• Consolidate and sacrifice your super – your superannuation is real money and it’s yours, so look at it like any other savings account.  Changing simple things today like finding lost super, consolidating your super and sacrificing a couple of extra dollars each week of your salary can make a big difference.
• Co-contribution – low income earners should consider making the most of the Government’s co-contribution scheme.  If you earn under $48,517 and make a personal after-tax superannuation contribution, the Government may contribute up to $500 per year to your super.
• Income – consider investing in a pension product with longevity protection that eliminates the risk of outliving your savings.

“It’s never too early to start planning for retirement.  It’s really important women take action today to secure the retirement lifestyle they’ve imagined and deserve,” she said.

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One third of Australians expect a financial shortfall at retirement: MLC.

Almost one third (31.7%) of Australians expect a large financial shortfall at retirement with a further 25% expecting a shortfall to some extent, according to a special report: MLC Retirement Survey.

Alarmingly only 3.5% of Australians expect to have more than enough money to maintain their lifestyles in retirement.

The survey of 2,000 Australians also found nearly 70% of respondents failed to consider major financial setbacks such as a major illness or unemployment in their retirement plans, with only 8.5% having a well-considered plan for major setbacks.

The level of concern was also evident in the MLC Quarterly Australian Wealth Sentiment Survey which found deposits and paying off debt continues to be the top investment priorities. Additionally, interest in superannuation and direct shares increased over the December quarter.

Despite the cautious outlook for the economy, respondents reported a growing appetite for direct shares particularly from those earning $75,000 to $100,000 per annum.

Key highlights:

• The top three barriers to sufficient retirement savings continue to be major health issues, loss of employment and lack of formal investment plan.
• Women are the biggest worriers when it comes to superannuation with inadequate funds for retirement, losing money, fees and inflation their biggest fears. Over one third of women (36%) indicate they’ll have far from enough money at retirement.
• Men are more optimistic when it comes to their financial situation at retirement with over one third (37.4%) expecting to have enough or more than enough to retire.
• Men aged 18-29 were the most relaxed about their financial situation at retirement.
• Queensland residents gave the least consideration to major setbacks in their retirement plans.
• Western Australian residents have the strongest intention to divest shares, bonds, balanced funds and invest more in superannuation. WA respondents were also the most concerned about retirement risk especially missing investment opportunities.

“It’s encouraging to see Australians thinking more about superannuation but as the survey suggests, there’s still not nearly enough being invested for retirement. Over 56% of respondents expect to have at least some or a major shortfall at retirement,” NAB Wealth Group Executive Andrew Hagger said.

“Wealth is the result of hard work, good decisions and good advice, and MLC strongly believes in the difference advice can make to someone’s life.

“Australians wanting to take control and get active in their retirement savings should seek financial advice to get the help they need to reach their goals,” Mr Hagger said.

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Few boomers have confidence recent changes will have positive outcomes for super.

Only 19% of Baby Boomers say recent moves to increase super contributions will give them more confidence in their ability to fund their retirement dreams according to the 2013 RaboDirect National Savings and Debt Barometer (NSDB), launched yesterday.

The survey of 2,322 Australians aged 18 to 65 also revealed the extent of the gap between average current superannuation pot ($180,467) for Baby Boomers and what they anticipate they will have at retirement ($316,666). And this latter figure falls worryingly short of the amount people feel that they would need to live 20 years in retirement ($749,824).

RaboDirect’s General Manager Greg McAweeney commented, “The retirement shortfall is worsened by the fact that, generally, people aren’t planning for the improvement in life expectancy. For instance people who are now 65 are expected to live until 85 for a man and 87 years for a woman and this equates to 20 years in retirement. And if you are younger than 65 you will live even longer than 20 years in retirement.”

The NSDB also found that almost one third (29%) of the Baby Boomer generation expect to have a mortgage when they retire. A large proportion are banking on super to repay this debt (25%) and for a further 33%, downsizing will hold the key to clearing their current mortgage and allowing them to enjoy their retirement mortgage free.

Levels of concern around mortgage debt post retirement are also high according to the study – more than half of Baby Boomers (54%) report that they are ‘quite’ or ‘very’ concerned about the prospect of retiring with a home loan.

While these findings may paint a seemingly bleak picture for retirees, Mr McAweeney says that awareness is necessary to encourage action and for people to think about how best to address the problems they are facing.

“It’s only with planning ahead, and having a clear understanding of their financial position heading into pre-retirement and retirement, that people can then start to think about solutions. Those who are a number of years away from retirement still have time to consider alternative savings strategies so they can avoid selling their homes or dipping into their super unnecessarily,” he said.

In other findings from the study released today, close to half of Baby Boomers (48%) expect to run out of money during retirement and say they will need the Aged Pension.

“For those who are facing the probability of drawing an Aged Pension later in life it is particularly important to look at ways of making their savings work as hard as possible now and really preparing for their retirement date,” Mr McAweeney commented.

Key findings:

The study found that many Baby Boomers are already living on a tight budget. More than seven in 10 (72%) Baby Boomers are reducing their power usage to save money and 68% are doing their own odd jobs rather than employing a tradesman.
Despite high levels of concern amongst Baby Boomer mortgagees, a significant proportion does not know what the rate is on their mortgage (16%).

In the current study 48% of Baby Boomers said they expected to run out of money during retirement. This is down from 57% last year, indicating an increase in confidence for this group.

Mr McAweeney concluded, “We conduct the National Savings and Debt Barometer to encourage people to become more engaged with their money so they can plan ahead and make the most of what they’ve got. For example, we know that Aussies are losing out on billions of lost interest by leaving their money in low interest accounts – the survey this year found that the average balance sitting in Australians’ transaction accounts has increased by 42.9% (from $1,396 to $1,995). By moving some of this excess money from a transaction account into a true-to-label savings account, Australians can make their money work harder for them and can truly experience the benefits of compound interest. This will give people greater financial freedom and more options in retirement.”

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Retirees in the drivers seat with investment choice.

Alliance approach provides financial planning practitioners support in building innovative retirement income solutions for specific individual investor objectives

Financial advisers are no longer content with the traditional benchmarking approach to investment returns and are instead seeking solutions that cater to the specific needs of investors – particularly retirees, according to Russell Investments and echoed by Matrix Planning Solutions.

The trend is reflective of nascent shift in investment objectives: investors want portfolios that are designed to achieve outcomes that are more closely aligned their goals, rather than simply trying to beat a common industry benchmark.

In a move designed to address this demand, Russell Investments has partnered with Matrix Planning Solutions, a leading independently owned financial planning network, to develop and launch the PartnerShip Funds – five actively managed portfolios designed to deliver different outcomes depending on the investor’s life stage and needs.

Since officially launching in December 2012, all five PartnerShip Funds are ahead of their annual objectives on a pro-rata basis. The PartnerShip Growth Fund has achieved the strongest performance, posting a return of 10.8% for the year to August 2013. This is well in excess of its official target objective – the Reserve Bank of Australia Cash Rate + 4.5%.

Russell Investment’s Managing Director Private Client Services, Siva Sivakumaran, attributes the funds’ success to the collaborative approach of the partnership which is reflected in the effective operation of the joint Investment Committee.

“The Investment Committee has been established to ensure open discussion between the two parties. It’s made up of representatives from both Russell and Matrix Planning Solutions who meet regularly to discuss market developments and quantitative research which is then made available to advisers,” Mr Sivakumaran said.

Matrix Planning Solutions’ Managing Director, Rick di Cristoforo, said the partnership has provided a platform for advisers to access quality investment information which is used to devise strategies that accommodate the life-stages and investment needs of individual retail investors.

“It reflects the commitment from both Russell and Matrix Planning Solutions to provide advisers with the most effective tools to maximise the likelihood their clients realise their investment goals,” he says.

In aligning with Russell Investments, Matrix Planning Solutions consulted heavily with its adviser network who indicated more tailored client solutions were needed in achieving business growth amid a sustained period of reform.

Other key performance figures for monthly returns for the year to 31 August include:

• PartnerShip Balanced Fund posted a net return of 7.69%, which is 3.72% in excess of its Reserve Bank of Australia Cash Rate plus 3% target (pro-rated)
• PartnerShip Debt Management Fund posted a net return of 7.67%, 4.26% above its target of 80% of the Australian Banks Average Variable Mortgage Rate (pro-rated).

Through the partnership arrangement, retail investors are able to benefit from Russell’s unique capabilities in its five core areas – capital markets insights, manager research, portfolio construction, indexes and portfolio implementation.

Mr Sivakumaran said as the investment landscape grows increasingly complex, there is a shift towards outcome-oriented investing which addresses the need for products focused on objectives understandable by the investor.

“Along with the global multi-asset surge, it becomes evident that Russell has a lot to offer through our experience in crafting adaptive portfolios that delivers the right outcomes for investors,” he said.

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Real assets can be useful tool to produce stable income

Legg Mason launches funds to fill gap for retiree tailored products

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A new paper released by Legg Mason today argues the burning issue of longevity risk needs to fuel a rethink of portfolio construction for retirees with a greater emphasis on income producing alternatives and equities.
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The paper argues the traditional method of allocating 70% of a portfolio to defensive assets in retirement will not be sufficient to sustain an income in retirement. Instead it suggests a number of alternatives including real assets like property, utilities and infrastructure and income-generating equities.
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“Retirees will require the bulk of their investment return to come from yields to sustain them through retirement,” said the paper’s co-author Reece Birtles, chief investment officer for Legg Mason Australian Equities.
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Solving the income conundrum

While it’s important for retirees to target yields, the exact type of yields needs to be carefully considered.
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“Overly defensive strategies like fixed income don’t provide the necessary growth in line with inflation to continue to meet rising costs and sustain income. However retirees need a lower level of risk, which includes investment, foreign currency and liquidity risk. Therefore some higher yield assets could be too risky for their purposes,” said Mr Birtles.
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A solution to the income conundrum could be real assets, he argues. Utilities, property and infrastructure provide a good middle ground between defensive assets like fixed income and growth assets like equity. They have strong yields but their income stream is not reliant on the cycle, meaning lower volatility.
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High income Australian equities also provide a solution as they boast unique income characteristics in the form of franking credits, according to Mr Birtles. Often ignored, franking credits can boost overall returns by 1% for those on a 0% tax rate (such as retirees). The key with equity income for retirees is to manage risk by picking equities with the power to sustain good dividends through characteristics including strong cash flow and low capex requirements.
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“For instance, mining is very capital intensive whereas non-bank financials with sustainable earnings such as AMP and Perpetual are favourable as are stocks like Woolworths or Metcash,” said Mr Birtles.
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New Legg Mason funds help fill gap for retiree tailored products

For the past 20 years, the industry has focused on accumulating assets with little focus on retirement, leaving a gap for specifically tailored products.
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“In the same way as many product innovations were driven by baby boomers as they moved through their working life, we are bound to see new products and ideas as boomers enter retirement,” said Mr Birtles.
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The newly launched Legg Mason Real Income Fund builds a portfolio of listed hard assets including A-REITs, utilities and other infrastructure such as electricity and gas grids, toll roads, ports, airports and hospitals. This delivers a good yield, inflation protection and is low risk.
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Meanwhile the Legg Mason Australian Equity Income Trust (due to be launched 1 June) will invest in companies listed on the ASX that have attractive, reliable dividends. It is designed to deliver an income yield higher than the market without relying on gearing, derivatives or other complex structures.
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“We think it is the right time to be targeting specific solutions for retirees. As more people reach retirement they need to make sure they have the right portfolio to make their savings last the distance,” Mr Birtles concluded.

cNTA

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“The global financial crisis has focused investor attention on one kind of risk, market risk – the risk associated with market volatility – and whether we are still in a bear market.

“As a result, investors have made avoiding or minimising this risk their priority, resulting in them keeping most, if not all, their money in cash, rather than focusing on their ultimate goal which is a retirement income that will last.

“Even now, when volatility has largely returned to pre-GFC levels, many investors are still keeping a significant proportion of their retirement savings in cash options such as term deposits, in the belief that this is the least-risky strategy.

“However, while this approach minimises market risk, it exposes investors to a number of other risks including inflation risk, income risk and opportunity risk,” Mr Dickman says.

He said that inflation risk, which is when higher levels of inflation eat away at returns and capital, is a major issue for those who have money in term deposits.

“As the interest rates offered on term deposits fall – as they are already starting to do – the return on the capital will also decrease.

“Inflation also means that capital locked up in a non-growth asset will have less value at the end of its two, three or five year term.

“Opportunity risk is associated with this. If the money is locked away in a term deposit for two, three or five years, it is money that can’t be used elsewhere – therefore opportunities for better returns and capital growth are being missed,” he said.

Mr Dickman added that perhaps the biggest risk for investors at the moment is income risk.

“Investors who took their money out of other investments to put into cash when the government introduced the bank guarantee have most likely sacrificed income.

“Term deposits may seem a safe haven now, but people probably don’t realise that this choice means they have introduced future income risk into their portfolio.

“With the first of the baby-boomer generation now entering retirement, as well as the trend of longer life expectancy, a stable, regular income will become a priority. This is something people won’t get from a term deposit where the interest is usually paid at the end of the term.

“Indeed, the burgeoning ageing population, combined with the higher health costs associated with people living longer, makes it even more important for Australians to be adequately prepared to fund their retirement.  A potential risk in its own right is relying on future governments to pick up the tab for those who run out of money.

“Therefore retirees in particular need to consider other investments, and find a balance between their desire for low-risk investments and their need for returns that will generate ongoing income in their retirement.

“It comes back to the value of taking a balanced approach through a diversified portfolio, and understanding that different investments offer different benefits, returns and risks.

“No single investment will provide investors with all three elements of high liquidity, high returns and low risk, so a combination is needed.

“Diversity also helps to manage all types of risk.

“Investors must assess each individual asset class on its own merits and make investment choices based on their own needs of income, liquidity, growth and risk,” Mr Dickman said.

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