With inflation yet to be tamed, Ensombl and Challenger have teamed up to develop resources to help advisers mitigate the damage retiree clients face from rising everyday costs.
The joint report titled ‘Practical strategies to mitigate the impact of inflation risk on retirement incomes’ showcases a range of case studies and reveals how advisers are using a combination of client-driven lifestyle changes, asset allocation, and product strategies to tackle inflation for retired clients or approaching retirement.
Ensombl chief marketing and communications officer Richard Dunkerley, who co-authored the report, interviewed several advisers so that their advice and insights in the report.
“Talking to [them] gave me an appreciation of just how many stresses retirees have, particularly at the point where they’re retiring,” he tells Professional Planner.
“There is a loss of certainty because lose the certainty of the pay check that they’ve been banking on for the last 30, 40 years.”
The report has been published on an interactive website developed by Ensombl and Challenger to make it more accessible to advisers.
“There are a lot of different ways advisers can help,” Challenger head of retirement income research Aaron Minney says, adding that the report can provide advisors education and understanding to help clients through the impacts of inflation.
Here comes the pain
The RBA lifted its official interest rate to 4.1 per cent on Tuesday, a level not seen since early 2012.
In the monthly statement explaining the board’s decision, RBA governor Philip Lowe said that while inflation has peaked at seven per cent, it is still too high and will take time before it is back in the target range.
“This further increase in interest rates is to provide greater confidence that inflation will return to target within a reasonable timeframe,” Lowe said.
“If high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment.”
Minney says that controlling inflation is up to the Reserve Bank and the government to worry about, but what the financial services industry and advice profession can offer is how to mitigate its impact.
“I’m much more focused on what it means in retirement,” Minney says. “What does it mean for people that have got to generate income from their investments? This is where it becomes a big issue.”
He explains that, generally, people’s wages go up with inflation. This was seen as recently as last week, when the Fair Work Commission increased the minimum wage by 5.75 per cent to keep up with inflation, but this doesn’t benefit retirees.
“When you’re retired, you don’t have a wage that’s going up with inflation,” Minney says. “Your income streams are also going to be eroded away by inflation.”
