Investments, Retirement

Retiree return goals mean greater risk

retirement return goals

Individuals on the cusp of retirement may need to take on significantly higher risk levels if they are to meet the return goals they set for the years they are no longer gainfully employed.

A partner of a mid-tier accounting firm has suggested individuals currently entering retirement may need to incorporate more risk in their superannuation portfolios to achieve the return goals they have set.

HLB Mann Judd Sydney wealth management partner Jonathan Philpot revealed clients of his firm who are about to begin their retirement years still want to preserve their capital, but also want to draw down on their superannuation benefits via a pension as a source of income.

Philpot forecast a portfolio return required to facilitate this goal would be around 5 per cent a year over the coming decade, which would be a difficult result to achieve given the current investment market climate without taking on an increased level of risk.

“Many retirees often come out with a balanced profile outlook. Once it was a fairly equal allocation between the risky and secure part of the portfolio. Certainly over the last 30 years interest rates have obviously fallen quite a lot and that balanced profile is now more about 70 per cent risky investments and about 30 per cent secure [assets],” he said during a wealth webinar held today.

“What I’m saying today is perhaps that allocation needs to be sitting at about 80 per cent in the risky part of the portfolio and about 20 per cent in the secure part of the portfolio in order to now achieve that 5 per cent return if that’s what retirees are seeking.

“That’s all [because] the future returns are not going to be as strong as what we’ve had for the last 10 years.”

Further, he suggested retirees may have to make allocations to global markets other than the United States to achieve this aim.

“Going forward for world share markets excluding the US, we’ve got a 5 per cent to 6 per cent outlook for those [regions],” he said.

While making the recommendation, he acknowledged the allocation to risky assets may even have to be higher than 80 per cent and emphasised how important it will be for retirees to continually manage their portfolio mix in the coming years.

According to Philpot, risky assets include equities, property, high-yielding corporate debt and hedge funds labelling themselves as defensive. On the other hand, he categorised cash, term deposits, bonds and high-grade corporate debt as secure assets.

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