The seven vital factors that shift investment strategies from accumulation to decumulation
In the past, most Australians have been in the accumulation phase when it comes to their money. Their primary objective has been building wealth. But that changed in 2011 when the first of 5.6 million Australian baby boomers hit retirement age. And every day another 800 baby boomers retire. The result is that this baby boomer bulge now has significantly different investment needs than they did in the past.
All retirees face common challenges and risks. A large loss just before or after retirement can significantly damage retirement outcomes (sequencing risk). The threat of an unexpected jump in inflation also looms, which would trigger a surge in the cost of necessities such as groceries and utilities. And many boomers will live longer, creating longevity risk – the possibility they will outlive their retirement savings and suffer a significant drop in living standards.
There is no single product that can deliver suitable outcomes for all retirees, but portfolio managers can use a broader toolkit to deliver retirees stable income streams and manage drawdowns, while also managing sequencing, inflation and longevity risk.
Amid a suite of strategies and tactics we believe there are seven key factors, which we explore in greater depth in this paper, that are particularly vital in order to shift the focus of the investment approach from accumulation, to a decumulation approach more suitable for retirees.