09 - 1 Retirement Income Streams BM Ch 14; TJHM Ch 15; CCH...

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Unformatted text preview: 1 Retirement Income Streams BM Ch 14; TJHM Ch 15; CCH Ch 16; Day et al Ch 12 Lecture 9 2 To provide a regular, secure and growing income to allow clients to meet expenses Keep in mind the importance of longevity risk, i.e. the chance that the client will outlive their savings 3 Basic necessary to meet all daily expenses (e.g. food utilities, clothes, etc.) Need a greater level of certainty, through regular (possibly stable) income Discretionary income to cover irregular expenses (e.g. holidays, entertainment, health care, etc.) Funded from savings from regular income, or withdrawals of capital 4 Life expectancy higher since 1900 Males - 40% higher Females - 60% higher Life expectancies are increasing Proportion of population aged 65+ is expected to grow from 12.7% in 2002 to 26.1% in 2051 Proportion aged 80+ is expected to grow from 3.2% to 9.4% in 2051 Retirees are Living Longer 5 Obviously, varies with lifestyle expectations, expenses, where they live, family situation, life expectancy, and health Senate Select Committee on Superannuation Funds to generate a retirement income of approx 65% of gross pre-retirement income at age 65 Westpac/AFSA Retirement Living Standards Comfortable lifestyle $53,565 (couple) $39,159 (single) Modest lifestyle $30,399 (couple) $20,981 (single) (Mar 2010 quarter, assumes homeowner) How Much is Needed? 6 Retirement Income Planning Strategies 1. Arrange income and assets so as to claim Age Pension 2. Diversified portfolio of general investment funds lower yield, may need to make capital draw downs 3. Rollover portfolio purely growth, capital draw downs 7 Retirement Strategies cont... 4. Income producing portfolio, comprising fixed term interest securities (term deposits, debentures) guaranteed income, little capital growth, reinvestment rate risk 5. Specific retirement income stream products: allocated pension term allocated pension term certain income stream lifetime income stream life expectancy income stream 8 Govt retirement fund $27,482 (couple) + pension supplement $2,238 $18,229 (single) + pension supplement $1,484 Originally, very few people were eligible life expectancy was lower than today 20% of male average weekly earnings (AWE) until 1975 Since then around 23% to 25% of AWE approximates the poverty line Government legislated to maintain pension at minimum 25% of male AWE Age Pension 9 1978 - 90% of people at retirement received full pension 1982 - 64% full pension (means test for over 70s) Today - 56% full pension, 21% part pension (approximately) growing because of global financial crisis!...
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This note was uploaded on 12/06/2011 for the course ECON 101 taught by Professor Shen during the Three '11 term at Monash.

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09 - 1 Retirement Income Streams BM Ch 14; TJHM Ch 15; CCH...

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