Tackling the big four financial risks at retirement
AXA Wealth’s David Thompson outlines how advisers can mitigate the impact of the fundamental retirement risks on their clients’ investments
After April this year, people in the UK will have much more financial freedom and choice in retirement, but we recognise that now the burden of risk has firmly moved to the consumer. People need to be able to look at the money they have saved while they have been working, the sort of retirement they are hoping to have and how they can devise a plan to help them meet these needs and reduce the impact of any risks.
In retirement the financial risks people face are different to when they are working. With the opportunity to add more money to their savings largely gone, how people will spend the money they have built up while working will matter greatly. However spending habits don’t tend to change massively. When it comes to spending before retirement people tend to group different needs into different ‘buckets’, for example essentials such as food and housing will be in a different bucket to the nice-to-haves, such as a holiday or shopping spree. This is no different in retirement.
We have identified the big four financial risks people face in retirement as longevity, volatility, inflation and a lack of flexibility and we helping advisers and their clients mitigate these:
• Longevity: By offering access to income guarantees, advisers can reassure clients that the essentials like food and housing will be covered for life.
• Volatility: Diversified investments can help reduce the impact of market volatility over time, while a cash holding can be used to fund ‘discretionary spend’ over the shorter term so that people don’t have to worry about more immediate market movements.
• Inflation: These investments also aim to provide asset growth over time to meet ongoing discretionary spend and aim to protect income from falling in real terms.
• Lack of flexibility: by investing through products that offer greater access, people can plan to cover their known income needs, without worrying that their money is locked away in their pension when they need it.
We’re combining our pensions and investment expertise to offer a financial planning model: Retirement LifePlanning that will give advisers and their clients complete flexibility and freedom in the way they manage income and access capital in retirement. The new model is detailed in a report1, commissioned by AXA Wealth from independent global consultancy Milliman, and provides advisers with a ‘bucket’ approach to break down their clients’ financial needs in retirement.
Our retirement manifesto is simple: by helping advisers minimise the impact of the four big retirement risks on their clients’ investments, we are able to help people achieve the retirement they want. Our Retirement LifePlanning approach will offer advisers and their clients the flexibility they want to make the most of the new rules, with the guarantee they demand to cover the essentials and the tools to help them plan for the future.
Planning for retirement is complicated and there is a great deal to consider. People should seek professional financial advice to help them make the most of the new rules. And our role as a provider is to ensure that investing is made clearer, more transparent and as easy as possible for advisers and their clients.
1For more information, or to download the report in full please visit the website –www.axawealth.co.uk/adviser/documents/rlp/Milliman-paper/
A summary of the report is also available here – www.axawealth.co.uk/adviser/documents/rlp/Retirement-LifePlanning-report-summary/