Retirees need to be more aggressive

Australian superannuation fund members approaching retirement age as well as retirees may be too conservatively positioned in terms of their investment portfolios and should be further exposed to growth assets, according to new research released by Watson Wyatt.

The research, released this week, suggests that while there has been a tradition of placing pre-retirees and retirees into conservative portfolio settings, this may prove counter-productive in circumstances where Australians are generally living longer.

The Watson Wyatt research has shown that the risk of a retiree couple running out of money over their lifetimes could be reduced by 14 per cent by shifting from a conservative growth-oriented investment strategy.

Watson Wyatt principal and consulting actuary Nick Callil said while a conservative strategy was still likely to produce more stable returns from year to year and reduced the chance of a sharp fall in the retirement account balance in any one year, the risk of the account being exhausted prior to death actually increased.

“This suggests that a meaningful exposure to growth assets — a diversified blend of shares, property and other risky assets — will still be appropriate for most retirees in retirement,” he said.

“A decumulation period of 20 years or more still requires a relatively long-term investment strategy,” Callil said. “To help combat longevity risk, retirees will generally benefit from maintaining a meaningful exposure to growth assets during their drawdown phase.”