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

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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 • Gov’t ‘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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09 - 1 Retirement Income Streams BM Ch 14 TJHM Ch 15 CCH Ch...

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