The case for risk in retirement

For the past decade, Lifetime Retirement Income hasn’t had to change a single retirement income projection.

That’s thanks to a sophisticated US risk-management system working quietly in the background.

“At Lifetime, we use proven actuarial risk management to convert capital into stable, long-term retirement incomes,” says Lifetime Retirement Income founder and managing director, Ralph Stewart.

Lifetime uses the Milliman Managed Risk Service (MMRS) model, developed by global actuarial firm Milliman in Chicago. It designs retirement income portfolios to generate the maximum amount of income payable, with an 85% probability of the income lasting 20, 25 or 30 years.

That confidence is maintained by actively managing portfolio risk. When volatility exceeds pre-set limits, derivatives are used to swap growth assets for equivalent cash assets – keeping income on track. 

Two integrated components sit behind the overall strategy – volatility management and capital protection, with the capital protection strategy component providing an additional buffer against losses during significant and sustained market drops.

“It means we can be 85% confident that a Lifetime investor with $250,000 can receive $413 per fortnight after fees and taxes, growing by 2% each year for 30 years,” Stewart says.

Every year on the anniversary of a Lifetime investor’s birthday, it reruns the original income assessment to ensure the income level remains right. If necessary, the investor would be advised of the need to increase or decrease income levels to stay on track with the 30-year target date.

“For the last 10 years, we have never had to revise a single income projection,” Stewart says.

He believes it’s proof that the old adage of ‘the older you get, the less investment risk you should take’ can comfortably be consigned to the ‘nonsense’ file.

“We have to replace it with modern income management techniques that embrace investment risk and use capital to its potential to create meaningful long-term retirement incomes,” he says.

“We have an obligation to help retirees fund the income they actually need - for the retirement they’ve worked so hard to achieve.”

When accredited advisers use the Lifetime service, they have access to an Adviser Calculator which allows their income projections to be remodelled to account for advice service fees. Detailed annual income reviews are then provided to the adviser to manage client interaction as they see fit.

If you would like to learn more about Lifetime Retirement Income and how you could get accredited please get in touch with Chelsea Devlin (chelsea.devlin@lifetimeincome.co.nz).