Volatile market conditions naturally weigh heavily on people who are about to retire and, with more volatility expected, Colonial First State believes retirees need good advice now more than ever.
Markets are likely to continue to be volatile in 2016, with further interest rate rises expected in the US following the historical first hike last December. Meanwhile, other central banks are considering easing policy, which is leading to central bank divergence for the first time since the Global Financial Crisis (GFC).
“People expect to receive income from their super savings for decades to come but fear of volatile markets can drive poor decisions, like selling out at the worst time and realising investment losses,” says Peter Chun, Colonial First State’s General Manager Product & Investments.
“Trying to time markets and responding to every market movement can leave people considerably worse off. As markets recover, it becomes evident that reacting to short-term volatility can get in the way of meeting longer-term needs,” he said.
“People who are about to retire should definitely talk to a financial adviser about managing market volatility so they can be confident in their retirement plans.”
Mr Chun said good advisers can help people manage volatility using different fund strategies and by blending market-linked pension products with guaranteed annuities in retirement income portfolios.
“Modelling by Colonial First State and Ernst & Young in 2015 (see note 1) shows that this approach, together with the Age Pension for eligible retirees, provides the optimum outcome in most markets for most people, most of the time.
“A good adviser can develop strategies that also help retirees enjoy an active retirement in the early years and have a plan in place to meet the expenses that come with increased health and aged care costs later in life,” Mr Chun said.
Notes:
Nagle, Saliba, Rubinsztein and Gardiner; The Optimal Solution To The Retirement Riddle, a paper prepared for the Actuaries Institute 2015 Actuaries Summit, May 2015 © Colonial First State and Ernst & Young
