Goals-Based Investing

The six things to consider when investing for retirement

By Jeff Rogers
Previous Chief Investment Officer, ipac (retired) Sydney, Australia

Many people aged between 50 and 65 are uncertain about being able to cover living expenses in retirement. In the past retirees could rely on the age pension to secure their retirement. Many retirees are now less confident about this source of support, as a growing number of baby boomers are retiring and the number of working people to support them is not keeping pace.

Governments are now encouraging Australians to save and invest on their own, so they can build income streams for retirement to supplement social security payments, and the earlier people focus on how to fund their retirement, the greater their capacity to respond.

It is vital, therefore, that advisers and investors increasingly understand the two main factors in retirement planning: goal setting and investment selection.

How to set retirement goals

The first factor in retirement planning is establishing a retiree’s goals. The process will allow an adviser or investor to work out what financial resources should be allocated to which goal, and to then choose an investment strategy that maximises the chances of reaching that goal. Not everyone will have the financial resources to meet all their goals, so an adviser must help their client set priorities.

Retirement goals can be diverse, but most belong to one of three broad categories: 

1. Essential needs

A person’s immediate need in retirement is to have an income to deal with the essentials in life, including food, housing, transport and paying regular bills. This represents the most important set of goals and requires the most pressing financial attention.

Confidence about the receipt of a steady cash flow becomes paramount. (Arguably the ups and downs of the day-to-day value of the underlying portfolio of assets is less important.) An adviser may recommend strategies centred on income-focused securities that deliver sustainable cash flow which keeps up with increases in the cost of living. Regular, sustainable income significantly boosts retirees’ confidence which helps them stick with their strategies. 

2. Lifestyle wants

Retirees may also want to set aside some capital to fund discretionary spending on goods and services such as holidays, hobbies, or the purchase of a new car. Attainment of these lifestyle wants enables a more enjoyable retirement, but the retiree doesn’t regard them as essential to their wellbeing. To help fund these lifestyle wants, investment strategies should grow capital steadily over time and have a low probability of producing a major or protracted decline in value.

3. Legacy aspirations

Finally, retirees with additional financial resources may aspire to leave a bequest for future generations. Investment strategies focused on legacy aspirations can accept greater short-term price variability so long as they deliver strong compound growth over the long-term.

Six things to look for when considering investment solutions

The second factor to focus on is the characteristics of solutions that are suitable for investment in retirement. Unfortunately, many fund strategies focus solely on total returns. That may be great for accumulators but is not sensitive to the unique needs of retirees.

There are six key factors that advisors and investors should focus on when considering retirement investments.

  1. A predictable and reliable stream of income: Consider strategies that aim to deliver a steady income in the form of coupons from quality bonds, dividends from shares or distributions from Real Estate Investment Trusts (REITs) and infrastructure.
  2. Resilient returns: Focus on strategies that are designed to exhibit greater resilience in challenging market environments.
  3. Inflation protection: It’s important that the overall portfolio seeks to grow with the cost of living to maintain purchasing power over time.
  4. Tax effectiveness: Even though most retirees have an income tax rate of zero per cent in retirement, franking credits attached to the sustainable dividends of quality Australian companies represent a good additional source of retirement income. But it is important to watch out for potential regulatory change in this area.
  5. Liquidity: It is easier to redeem money from liquid investments when a change in circumstances may require it.
  6. Transparency of strategy: Seek strategies that are easy to understand and where the manager offers regular communications and insight into how funds are performing against retirees’ goals.

Set up success

Australia’s investment and advice market has largely been set up for investors in the accumulation phase. But more and more investors are entering decumulation, which requires a different approach.

The key is to understand retirement goals: what does success and failure look like? What do retirees want at this point in life and how might that evolve over time? What constitutes a ‘must have’; what is ‘nice to have’ and what is ‘aspirational’?
By answering those important questions, various goals can be matched with investment strategies that meet the unique challenges and risks of retirement.

Ultimately, advisers and clients who work together to clearly identify what truly constitutes success and failure – and then align investments with success – are more likely to enjoy a successful long-term relationship.


If you would like to know more about AMP Capital's goals-based approach to investing, you can find it here Goals-based Investing.

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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.


This article is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.

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