Retirement strategies should expand past yield only approach
Current retirement income strategies are ‘good, but not perfect' and do not look beyond traditional sources of retirement income that are becoming mismatched to the increased longevity of retirees.
Capital Group senior vice president, Andy Budden, said that the current accepted model of accessing retirement income from superannuation works if there are sufficient funds but these are not always protected against inflation.
According to Budden those investing for retirement have to balance the need for long term income that will match their longevity alongside some form of future income growth that will offset inflation.
He said that to date there had been a strong focus on current income needs and less on future income needs and that retirement income models in Australia relied heavily on equities dividends to create income.
This had come about because the Australian experience of dividend income had been good with tax rules making it beneficial to reward shareholders with dividends which had led to good management of corporations according to Budden.
"Australians have been biased towards this experience because they have not seen the same conditions overseas and this investing approach works well in Australia - until it doesn't," Budden said.
He said that 43 per cent of the aggregate dividend income from the ASX came from five stocks and 54 per cent of the aggregate dividend income came from financial services stocks with many Australian investors believing that dividends are unique to the Australian and UK markets.
"There are companies across the world that pay a dividend and then make efforts to grow it" with Budden naming Nestle and Microsoft as two examples of global companies providing long term dividend growth.
Budden said this was an important application for investors in that while these investments were not a high yield strategy they provided long term growth that avoided having to buy expensive stocks to access ongoing yield.
As a result of this strategy Capital Group has launched its third retail managed fund — World Dividend Growers — that will offer hedged and unhedged investments in 73 global stocks, drawn from 8000 around the world, that are paying and growing dividends.
Minimum investment in the fund is $25,000 with Capital stating it had received an Investment Grade rating from Lonsec but was still working to get the product on platforms.
AUTHOR
Jason Spits
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