Managing Director of Centaur Financial Services, Hugh Robertson was featured in the ‘Retirement Income’ addition in Financial Standard – Volume 19 Number 20.
“I am deeply concerned that retirees are taking on too much risk to generate income and not understanding how to build a retirement portfolio.” – Hugh Robertson
According to Financial Standard, Baby boomers paid off mortgages when interest rates were sky high, weathered the Global Financial Crisis (GFC) as they were nearing retirement and now, they are retiring when the Reserve Bank of Australia (RBA) cash rate is a once un-imaginable 0.10%.
Financial Standard say that the cash rate means the lowest-risk, most liquid asset is completely unable to keep up with inflation. Couple this with uncertainty of the ongoing COVID-19 pandemic, equity markets reaching the highs they did right before the 2008 GFC and an ever-increasing cost of living.
There is also the fact to consider that Australia, like many wealthy nations, has an ageing population and in turn a smaller pool of taxpayers to support them. By 2047, it is estimated 25% of the Australian population will be over the age of 65 – a larger proportion than ever before.
But the Baby Boomers are also the first generation to retire with about 30 solid years of guaranteed superannuation under their belts and there is certainly political will to support positive retirement outcomes in Australia.
With these factors combined, the generation entering retirement now are about to be part of an experiment – they will be the first to really have the chance to benefit from a new wave of retirement income products, and a new political determination to prioritise retirement income.
Centaur Financial Services managing di- rector and senior financial adviser Hugh Robertson uses a total return approach for retirement income, taking advantage of the tax concession in the drawdown phase which takes away the capital gains tax (CGT) constraint.
He also generally sees the benefits of a laddered approach. This is where year one might be in cash, two to three in short duration active fixed income strategies, three to seven in a diversified investments portfolio reflective of a balanced asset allocation, and beyond seven years it might be wise to look to Australian and global equities to generate long term growth and keep the portfolio ahead of inflation.
He’s sceptical of some of the longevity products that are increasingly coming onto the market designed to meet the needs of a generation of retirees who are living longer. Instead, Robertson sees the benefit of the tried and tested “balanced” portfolio – even in retirement.
“The 65% into growth assets and 35% in defensive assets that is purpose-built with clear rules about retirement income spending, cash reserves, well diversified, blue-chip companies on the investing side that produce revenue, and a dynamic investment in the fund that can work as a shock absorber for the portfolio,” he says
Crucially, 60% to 70% of a retirement port- folio should be in growth assets because for this generation retirement could easily be 30 years long, Robertson says.
Andrews agrees with Robertson’s point on staying ahead of inflation and of the benefits of diversification in retirement. They also agree that unfortunately, the income conundrum this generation of retirees face has led to some un- scrupulous actors taking advantage and some retirees being encouraged to take on far more risk than they are really comfortable with.
Robertson adds that he was disappointed to see the way that Mayfair Platinum advertised income products to wholesale investors prior to ASIC acting and Mayfair founder James Mawhinney being banned for 20 years.
If ASIC’s allegations about how Mayfair advertised its products prove to be true (the case is currently before the courts) then Mayfair essentially advertised guaranteed income with low to no risk – something Robertson says, just isn’t real.
“I am deeply concerned that retirees are taking on too much risk to generate income and not understanding how to build a retirement portfolio,” he says.
Long is also concerned that retirees are getting into some high yield credit products that are generally high risk. He agrees with Robertson that having a year or two of cash in one bucket makes sense but beyond that, cash will not keep up with inflation and give them the retirement they want.
At a time when investment returns are at extremely low levels for some asset classes, Fechner agrees with Robertson that there needs to be a more sophisticated conversation around taking on investment risk.