4 March 2019

Protecting your nest egg from a market crash as you near retirement...


When you’re about to retire, you may have the most savings that you’ve ever had. A market downturn at this time can therefore impact the amount of money you'll have for the rest of your life. 

As you no longer work when you’re retired, you don’t have the opportunity to ride out market cycles and earn your capital back.

If you’re nearing retirement, this might be a good time to take another look at how you’re saving to make sure you’re not overly exposed to investment market risk.

While it’s important to keep some cash on hand in retirement (for emergencies etc.), it’s also sensible to think of cash, term deposits, and conservative funds as part of your retirement portfolio, rather than all of it. 

Lifetime protects people approaching retirement by locking in their investment upside and insuring their downside.

We refer to this as ‘Defer and Grow Your Income’. Simply put, you invest a lump sum with Lifetime but don’t draw an income straight away. 

On the day you invest, you're given an Insured Income Base. This is set equal to the value of your initial investment and is the base your income is calculated from.

Each year, Lifetime reviews your Insured Income Base and resets it to the higher of your investment account balance or its present value.

This locks in annual returns and protects your income from market volatility. While your account balance will fluctuate with investment markets, your Insured Income Base will not.

Because your Insured Income is calculated from your Insured Income Base, this means your income can rise or remain the same, but it cannot fall.

This is helpful in the crucial years leading up to retirement. Lifetime’s balanced fund can help you grow your money while Lifetime’s insurance simultaneously protects your income from any market volatility.


What happens if there’s a market downturn and you’re deferring income?

Let's say you're 62 and have just invested $100,000 but don't want to start income until you retire at age 67. What happens if there's a market downturn during this time?

Your Insured Income at 67 will be at least $5,200 per annum (or $200 each fortnight) regardless of market volatility or how long you live. This is based on a minimum Insured Income Base of $100,000 and a net income rate of 5.20% per annum.

However, it’s likely that your Insured Income will be higher as investment returns during your deferral period will increase your income. Each year from age 62, your Insured Income Base will be reviewed and locked in to reflect market growth. However if markets fall, your Insured Income Base will stay the same. 

The table shows how this might look in a market that drops and then recovers.

At 62, your Insured Income Base is equal to your initial investment of $100,000. 

Markets perform well from age 62 to 65 and your investment account balance increases. Each year, on the anniversary of your investment, your Insured Income Base is automatically increased to lock in these gains.

However, there is a market downturn when you are 66, and your account balance falls from $123,000 to $99,000. Although your account balance has fallen, your Insured Income Base and future income have not.

The market recovers slowly in the following year and your account balance increases to $105,000. When you start receiving your Insured Income at 67, it is calculated on your highest Insured Income Base of $123,000.

At 67, your net income rate is 5.20% per annum. On an Insured Income Base of $123,000, your net Insured Income will be $6,396 per annum, paid into your bank account at a rate of $246 every fortnight, for the rest of your life.


What could your income be?


Find out with our Lifetime Income Calculator!