21 November 2019

Let's be careful out there

Ever heard of a financial term called “sequencing”? It is a nasty word in particular for those in or heading into retirement, and yet, I hear very little about it.

It refers to a sequence of normally unrelated events all occurring at once can cause an investment market failure. When these events happen as you are approaching or in the early years of your retirement it can cause irreparable damage to your retirement nest egg.

For example the US stock market remains on its longest positive run in history, interest rates are the lowest they have been in decades and the tensions between the world’s major economies are worsening. It’s not our intention to be alarmist, but rather to be practical.

When these events, unrelated events, all occur at the same time, the implications on the levels of retirement income you can earn is significant. For the foreseeable future we must judge the risk to be high.

It’s time to be careful and cautious.

Here is a hypothetical example. Karen and Peter had recently entered retirement and had planned to spend some of their savings to supplement their retirement for the next 30 years.

However, investment markets fell and 10% of their savings were lost. When you are no longer working and must rely on your saving to supplement your retirement income, how do you recover a sudden 10% loss in savings. Can you afford to lose 10% of your retirement nest-egg?

In practise Karen and Peter would have to spent less in retirement than they had planned. We don’t want this. At lifetime we provide protection against risks of this nature. This is how it works.

Karen and Peter are 66, they have $400,000 in retirement savings, they are both still working and expect to retire when Peter turns 68. They invest with Lifetime, who invest their saving and guarantee Karen and Peter a minimum level of income in the future.

In this example the minimum income is $815.00 per fortnight after taxes at age 68.

Only two things can really happen from here.

1) Investment markets continue to grow and at age 68 Karen and Peter’s savings have grown to $440,000. Because they have a higher saving balance at age 68 their guaranteed income for life increases from $815.00 per fortnight after tax to $897.00 per fortnight

2) Alternatively, investment markets fall by 10%. Karen and Peter’s savings balance falls to $360,000. Because Karen and Peter have the Lifetime minimum income guarantee even though they can now only access $360,000 of savings their income does not change it remains at $815.00 per fortnight after tax.

Karen and Peter have the benefit of being invested and enjoying positive returns and the security of knowing even if markets fall they have a minimum level of future income they can rely on.

In these uncertain times more and more of our investors are seeking to protect their future retirement income. We call this Lifetime Defer and Grow. If you would like learn more please email us at or book a call back.