building better retirement portfolios - ifa.com.au · © copyright allianz australia life insurance...

© Copyright Allianz Australia Life Insurance Limited

Jacqui Lennon

Building Better Retirement

Portfolios


+ The reality of retirement


Retirees fear running out of money

3

▪ 61% of people fear running out of money in

retirement more than they fear death.1

▪ 60% of 50-70 year olds fear running out of

money.2

1. Allianz Life – Reclaiming the Future Study (2010)

2. National Seniors Australia – Feeling Financially Comfortable: What Retirees Say (March 2019)

3. Australian Institute of Health and Welfare (AIHW) 2017. Life expectancy and disability in Australia: expected years living with and without disability. Cat. no. DIS 66.

Canberra: AIHW

0

5

10

15

20

25

1881-1890 1960-1962 2014-2016

Years

Life Expectancy Beyond 653

Male Female


4

Retirees respond with frugal living

0%

10%

20%

30%

40%

50%

60%

70%

Pro

po

rtio

n o

f p

eo

ple

(%

)

Superannuation Drawdown Rates1

65-74

75-79

80-84

85-89

1. Analysis conducted by Centrepoint Alliance

2. Milliman – Retirement Expectations and Spending Profiles (2018)

More than half of

Australian retirees are

spending less than the

Age Pension each year.2


+ Problem with the status

quo


6

Efficient Frontier

Cash

Australian Fixed Interest

Conservative

Balanced

Growth

Equities

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Efficient Frontier

Exp

ecte

d R

etu

rn P

er

An

nu

m

Risk Per Annum (Standard Deviation)Source: Macquarie Technical. Illustrative purposes only


7

Efficient Frontier

Cash


Conservative

Balanced

Growth

Equities

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

1% Drawdown

Exp

ecte

d R

etu

rn P

er

An

nu

m



8

Efficient Frontier

Cash


Conservative

Balanced

GrowthEquities

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

2% Drawdown

Exp

ecte

d R

etu

rn P

er

An

nu

m



9

Efficient Frontier

Cash


Conservative

Balanced

GrowthEquities

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

3% Drawdown

Exp

ecte

d R

etu

rn P

er

An

nu

m



10

Efficient Frontier

Cash


Conservative

Balanced

GrowthEquities

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

4% Drawdown

Exp

ecte

d R

etu

rn P

er

An

nu

m



11

Efficient Frontier

CashAustralian Fixed

Interest

Conservative

Balanced

Growth Equities

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

5% Drawdown

Exp

ecte

d R

etu

rn P

er

An

nu

m



12

Retirement Efficient Frontier

Cash


Conservative

Balanced

Growth

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

5% Drawdown

Exp

ecte

d R

etu

rn P

er

An

nu

m

Probability of Running Out of Money (over 35 years)Source: Macquarie Technical. Illustrative purposes only


13

Sequencing Risk

1. Illustrative purposes only. Starting balance of $100. Drawdown equal to 3% of starting balance indexed to inflation at a rate of 1.50%

$-

$500

$1,000

$1,500

$2,000

$2,500

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34

Ac

co

un

t V

alu

e

Year

$0

$4

$8

$12

$16

$20

$-

$500

$1,000

$1,500

$2,000

$2,500

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34

Inc

om

e

Ac

co

un

t V

alu

e

Year

Accumulation Drawdown


14

Sequencing Risk – Birthday Lottery

Source: Wealth Benchmarks™

1. $500,000 invested in a diversified, multi-sector 60/40 balanced portfolio – rebalanced annually. Drawdown equal to 5% of starting balance indexed to inflation at a rate of 3%


Polling Question

Enter the code: 663681 and vote

Go to www.menti.comGrab your phone


16

Hyper Loss Aversion

1. AARP and the American Council of Life Insurers – How Retirees Manage Money to Make it Last Through Retirement (2007)

Value from gain Fear from loss

The Importance of Financial Security1

5X

gre

ate

r

Retirees fear a loss ten times as much

as they value a gain, whereas the

average person fears the loss only

twice as much as they value a gain.1


+ Robust Retirement

Portfolios


18

Constructing Retirement Portfolios –

Sustainable Income

The above portfolios represent the 50th percentile of the 5,000 portfolio simulations conducted by Milliman, with 30% of the equity allocation in the retirement portfolio invested in Future Safe. Milliman have run the

stochastic simulations using the Milliman Economic Scenario Generator. The Future Safe performance shown is hypothetical/non-actual performance information that shows results based on stochastic model

simulations constructed by commissioned research houses. The calculations are based on various portfolio allocation and financial assumptions that are predictive in nature. The outcomes actually achieved may

differ materially from these projections. Past performance is not a reliable indicator of future performance. The simulated results assume the same caps at outset over the life of the 7 year or longer projections while

actual caps may move each year. The caps used are an average of estimated historical caps. To calculate these historical caps, we have estimated the average yield for a selection of quarters over the period 1

January 2006 through to 30 April 2019 and used these yields to estimate the caps we could afford for those quarters. The cap used on the 0% floor is 8.9%.

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44

En

din

g A

cco

un

t V

alu

e

Years After Retirement

Average Outcome

Conservative (Average) Growth (Average)


19

Constructing Retirement Portfolios – Loss

Aversion

Max 1 Year Drawdown

Conservative Portfolio

Growth Portfolio

-12.9%

-20.4%

The above portfolios represent the 1st percentile of the 5,000 portfolio simulations conducted by Milliman, with 30% of the equity allocation in the retirement portfolio invested in Future Safe. Milliman have run the







20


Sequencing Risk

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

En

din

g A

cco

un

t V

alu

e


Conservative (Worst Case) Growth (Worst Case)








21


Sustainable Income







$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44

En

din

g A

cco

un

t V

alu

e


Average Outcome

Conservative (Average) Growth (Average) Retirement portfiolio


22

Constructing Retirement Portfolios – Loss

Aversion

Max 1 Year Drawdown

Conservative Portfolio

Growth Portfolio

Retirement Portfolio

-12.9%

-20.4%

-12.4%

40% improvement in loss aversion risk vs

growth portfolio and a lower max drawdown

than a traditional conservative portfolio

The above portfolios represent the 1st percentile of the 5,000 portfolio simulations conducted by Milliman, with 30% of the equity allocation in the retirement portfolio invested in Future Safe. Milliman have run the







23


Sequencing Risk

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

En

din

g A

cco

un

t V

alu

e


Conservative (Worst Case) Growth (Worst Case) Retirement Portfolio (Worst Case)

25% improvement in sequencing

risk vs growth portfolio and a better

outcome than a traditional

conservative portfolio








24

Constructing Retirement Portfolios

Traditional Conservative

Portfolio

Innovative Retirement

PortfolioIncrease

Expected years of

income30 years 36 years 20%

Loss Aversion

(Max 1 year drawdown)-12.9% -12.4% 4%

Sequencing Risk

(Worst case years of

income)

18 years 20 years 11%

The above portfolios represent the 1st, 5th and 50th percentile of the 5,000 portfolio simulations conducted by Milliman, with 30% of the equity allocation in the retirement portfolio invested in Future Safe. Milliman

have run the stochastic simulations using the Milliman Economic Scenario Generator. The Future Safe performance shown is hypothetical/non-actual performance information that shows results based on stochastic

model simulations constructed by commissioned research houses. The calculations are based on various portfolio allocation and financial assumptions that are predictive in nature. The outcomes actually achieved

may differ materially from these projections. Past performance is not a reliable indicator of future performance. The simulated results assume the same caps at outset over the life of the 7 year or longer projections

while actual caps may move each year. The caps used are an average of estimated historical caps. To calculate these historical caps, we have estimated the average yield for a selection of quarters over the period 1



25

DisclaimerThis material is issued by Allianz Australia Life Insurance Limited, ABN 27 076 033 782, AFSL 296559 (Allianz Retire+). Allianz Retire+

is a registered business name of Allianz Australia Life Insurance Limited.

The information contained in this material is current as at August 2019 unless otherwise specified. The information in this publication has

been prepared specifically for authorised financial advisers in Australia, and is not intended for retail investors. It does not take account

of any person’s objectives, financial situation or needs. Before acting on anything contained in this material, you should consider the

appropriateness of the information received, having regard to your objectives, financial situation or needs. This information is for

illustrative purposes only and does not constitute financial advice. The returns on the Future Safe product are subject to a number of

variables including investor elections, market performance and other external factors, and may differ from the information contained

herein. Past performance is not a reliable indicator of future performance.

No person should rely on the content of this material or act on the basis of anything stated herein. Allianz Retire+ and its related entities,

agents or employees do not accept any liability for any loss arising whether directly or indirectly from any use of this material.

Allianz Retire+ is the issuer of Future Safe. Prior to making an investment decision, investors should consider the relevant Product

Disclosure Statement and Policy Document which are available on our website (www.allianzretireplus.com.au).

PIMCO provides investment management and other support services to Allianz Australia Life Insurance Limited but is not responsible for

the performance of any Allianz Retire+ product, or any other product or service promoted or supplied by Allianz. Use of the POWERED

BY PIMCO trade mark, or any other use of the PIMCO name, is not a recommendation of any particular security, strategy or investment

product.

The products referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such

products or any index on which such products are based. The PDS contains a more detailed description of the limited relationship MSCI

has with Allianz Retire+ and any related products.

https://www.allianz.com.au/my-allianz/policy-documents/


26


27

Appendix – Asset Allocations

20%

18%

8%17%

27%

10%Australian Equities

International Equities

Property

Alternatives

Fixed Interest

Cash

26%

25%

10%

18%

16%

5%

33%

32%

10%

16%

6%

3%

Conservative Portfolio Balanced Portfolio Growth Portfolio

1. Illustrative purposes only

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