代写 UNSW ACTL5401 Retirement Planning
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代写 UNSW ACTL5401 Retirement Planning
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Australian School of Business
School of Risk and Actuarial Studies
ACTL5401 Retirement Planning
(Distance Learning)
Topic 3: Risks in Retirement – 1
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Topic 3 & 4- Key Learning Objectives
1. Appreciate the retirement goals of pre and actual retirees
2. Become familiar with the key economic, financial and other risks
people face as they enter and move through retirement.
3. Understand the impact of these risks for retirement needs, plans
and options .
4. Gain an initial awareness of HOW to manage these risks before
and through retirement.
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Topic 3 - Key Themes
1. Retirees goals will include an income target, preserving capital and
risk management
2. Near to and actual retirees face a number of economic, financial
and other risks including – replacement risk, employment risk,
longevity risk, inflation risk, investment risk, contingency risk,
default risk, political risk
3. Retirement plans should cater for these risks:
I. Many people do not retire when expected due to health
conditions, job loss, carer responsibilities
II. Lifetimes are difficult to predict, but those who live longer than
expected may outlive their savings
III. Inflation erodes savings and reduces future spending power.
Continuation of low inflation is not guaranteed
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Topic 4 - Key Themes
3. Retirement plans should cater for these risks:
IV. Retirees are vulnerable to both too little and too much
investment risk. Near to and recent retirees are particularly
vulnerable to sequencing risk
V. Retirees appear unprepared for contingency risk, particularly
relating to unexpected health and aged care expenses
VI. Political risk is real. There is no guarantee that publicly provided
benefits and tax provisions will remain unchanged
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Topic 3 & 4 - Outline
1. Retirement goals
2. Economic, financial and other retirement risks: An overview
3. Employment risk
4. Longevity risk
5. Inflation risk
6. Investment risk
7. Contingency risk
8. Default risk
9. Political risk
10. Other risks
11. Implications for retirement income goals
Topic 4
Topic 3
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Topic 3 - Essential Readings
Overall reading
Society of Actuaries (2011), Managing Post-retirement Risks.
Employment risk
ABS Retirement and Retirement Intentions (ABS 6238.0), Summary of
Findings and Article: Changing Retirement Intentions and Behaviours – An
Age Cohort Analysis.
Longevity risk
Actuaries Institute (2012), Australia’s Longevity Tsunami.
Investment risk
Finsia (2012), Sequencing Risk: A Key Challenge to Creating Sustainable
Retirement Income.
Contingency risk
ABS 4367.0 - Aspects of Disability and Health in Australia, 2007-2008.
Political risk
Productivity Commission (2013), An Ageing Australia: Preparing for The
Future.
代写 UNSW ACTL5401 Retirement Planning
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1. Retirement goals
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What are typical goals of pre and actual retirees?
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Retirement goals
Income
Capital &
Liquidity
Goal?
Address retirement risks
Replacement risk
Employment risk
Longevity risk
Inflation risk
Investment risk
Contingency risk
Default risk
Political risk
Goal?
Maintain lifestyle
Goal?
Funds to enable lumpy
expenditures,
unexpected
expenditures &
bequests
Retirement
Risks
?
Strategies
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2. Retirement risks
Read: Society of Actuaries (2011), Managing Post-Retirement
Risks.
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Retirement risks
People are exposed to a variety of risks as they enter
retirement and after they have retired
These risks affect retirement needs, plans and options
It is important to understand and manage these risks in order
to achieve and maintain desired living standards in
retirement
Failure to manage risks could result in retirees outliving
savings, lower standard of living, smaller bequests
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Retirement risks
Replacement risk
Employment risk
Longevity risk
Inflation risk
Investment risk
Contingency risk
Default risk
Political risk
* Will be covered in Topic 5 12
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Retirement risks
Replacement risk The risk of inadequate retirement income *
Employment risk The risk that retirement from the labour force differs
from plans
Longevity risk The risk of outliving savings
Inflation risk The risk of erosion of purchasing power
Investment risk The risk of unevenness in income due to volatility of
investment returns
Contingency risk The risk associated with an unexpected (and/or
uninsurable) event – such as health or aged care
expenses
Default risk The risk of default of a retirement benefit provider
Political risk The risk of policy changes which eliminate or dissipate
benefits
* Will be covered in Topic 5 13
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3. Employment risk
Read: Society of Actuaries (2011), Managing Post-Retirement
Risks.
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Employment risk
The risk associated with uncertainty of employment
status – in particular that retirement from the labour
force differs from plans
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Employment risk
The risk associated with uncertainty of employment status
Pre-retirement: a loss of anticipated income or forced early
retirement with the need to prematurely dip into
superannuation savings
Retirement is often earlier than planned, often because of
job loss, poor health or unforeseen life events
Post-retirement: a loss of anticipated income to supplement
retirement savings by working (possibly part time) during
retirement
As well as job insecurity, people may experience fluctuations
in income
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Employment risk – planned age at retirement of
current workers
In 2012-13, of the 3.7 million in the labour force who indicated that
they intend to retire, 37% did not know the age they would retire. Of
those who did indicate an age:
17% intend to retire at 70 years or older (19% men, 15% women)
49% intend to retire between 65 and 69 years (53% men, 45%
women)
25% intend to retire between 60 and 64 years (22% men and
29% women)
9% intend to retire between 45 and 59 years (7% men, 12%
women)
Source: ABS 6238.0 Retirement and Retirement Intentions 2013
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Employment risk – age at retirement of current
retirees
In 2012-13, the average age at retirement from the labour force for
people aged 45 and over was 53.8 years (58.5 for men and 50.0 years
for women)
Of the 1.5 million men who had retired:
25% had retired aged < 55
50% had retired aged 55-64
25% had retired aged 65 and over
Of the 1.9 women who had retired:
55% had retired aged < 55
36% had retired aged 55-64
9% had retired aged 65 and over
[However, average age at retirement for those who had retired in the past 5
years was older at 61.5 (63.3 men and 59.6 women)
Source: ABS 6238.0 Retirement and Retirement Intentions 2013
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Retirement is often earlier than planned
Expectation vs. Reality
72% of male workers
intend to work until at
least age 65
Expectation vs. Reality
60% of female workers
intend to work until at
least age 65
Persons retired from Labour Force – by age and gender
Source: ABS 6238.0 Retirement and Retirement Intentions 2013
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Employment risk – of those intending to retire,
main factor influencing decision
Source: ABS 6238.0 Retirement and Retirement Intentions 2013
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Employment risk – of those currently retired, why
did they leave work?
Source: ABS 6238.0 Retirement and Retirement Intentions 2013
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Employment risk – main expected source of
income at retirement
Source: ABS 6238.0 Retirement and Retirement Intentions 2013
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Employment risk – actual source of income of
current retirees
Source: ABS 6238.0 Retirement and Retirement Intentions 2013
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Employment risk – there is often a mismatch –
with retirement earlier than planned
According to ABS (Australian Bureau of Statistics) 6238.0 - Retirement and
Retirement Intentions (2013):
People say they plan to retire when:
– Finances are in order - 45% of men, 44% of women
– Physical capacity or health decline - 26% of men, 28% of women
– Eligible for Age pension/superannuation - 21% of men, 18% of women
They actually retire when:
– Eligible for Age pension/superannuation - 52% of men, 40% of women
– Health fails (especially younger retirees) - 30% of men, 28% of women
– Redundancy or unemployment - 11% of men, 14% of women
– Take care for partner or family - 2% of men, 10% of women
Source: ABS 6238.0 Retirement and Retirement Intentions 2013
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Employment risk – as well as job insecurity, people
may experience fluctuations in income
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Employment risk – key points
Many people retire earlier than planned
However, behaviour is changing – people both planning to
and actually retiring at older ages
Many people retire unexpectedly – due to health,
retrenchment, carer responsibilities
There may be barriers to continued employment:
Age discrimination
Skills
Age Pension means tests
Access to other public support or benefits
As well as job insecurity, people may experience fluctuations
in income
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4. Longevity risk
Read: Actuaries Institute (2012), Australia’s Longevity Tsunami.
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Longevity risk
The risk of living longer than expected – and outliving
one’s savings (that is, of running out of money)
As noted in Topic 1: Life expectancy is increasing......
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40
45
50
55
60
65
70
75
80
85
90
1891-00 1920-22 1946-48 1960-62 1970-72 1980-82 1990-92 2000-02 2010-12
Life expectancy
Life Tables
Total life expectancy at selected ages (males)
At age 0 At age 30 At age 65
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40
45
50
55
60
65
70
75
80
85
90
1891-00 1920-22 1946-48 1960-62 1970-72 1980-82 1990-92 2000-02 2010-12
Life expectancy
Life Tables
Males vs. females, life expectancy at birth
Males Females
Males 79.9*
Females 84.3*
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Key issues to a better understanding of life
expectancy
Commonly used indicator of life expectancy is the ‘raw’ LIFE
EXPECTANCY AT BIRTH
While there have been large improvements in mortality over
the past 100 years, the raw life expectancy data does not
take into account two important factors
Future improvements in mortality (period life expectancy)
Improvements over an individual’s lifetime (cohort life
expectancy)
Taking into account both factors, many individual retirees are
likely to live for a long time and for retiree couples, there is a
significant likelihood that one member of couple will live for a
VERY long time.
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Key fact: Standard Life Tables underestimate life
expectancy
The 2010-12 Life Tables tell us that Life Expectancy at birth (in
2012) is 80.3 for males and 84.6 for females. However using
COHORT life expectancy a male born in 2012 is projected to
live for 91.6 years and a female for 94.4 years.
There is still an impact for current pre and actual retirees:
The 2012-12 Life tables tell us that a 65 year old male is expected to
live for 19.1 years (to age 84.1) and a 65 year old female by 22 years
(to age 87). Cohort life expectancy will be higher. Forecasts by the
Australian Government Actuary in 2009 suggest that men may live to
around 85 and women to age 88 (more recent estimates suggest
approx 86 and 89).
We also know that forecasts of life expectancy are regularly
revised up.
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Standard Life Tables underestimate Life
Expectancy
Males Females
Life expectancy at birth
(2010-12 Life Tables)
80.3 84.6
(Period) Life expectancy
at age 65 (2010-12 Life
Tables)
84.1 87.0
(Cohort) Life expectancy
at age 65 (recent
estimates)
86.2 89.0
At a minimum these higher ages should be used in retirement planning
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Key fact: Life expectancy is an average. 50% of
those alive at age 65 will live for long than life
expectancy at age 65
MALES FEMALES COUPLE *
Life expectancy at age 65
(2010-12 Life Tables)
84 87 90
40% still alive at age .. 87 90 92
25% still alive at age .. 90 93 94
10% still alive at age .. 94 97 98
5% still alive at age .. 97 99 >100
* Period Life expectancy. At least one of a couple currently both age 65 still
alive at age …
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Probability of survival
0
25
50
75
100
65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99
Male Female At least one spouse
Probability of a 65-year-old living to various ages
78 81 86
84 87 90
90 93 94
%
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How to calculate survival probabilities?
e.g. What is the chance that a 55 year old
male will live at least another 10 years?
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The life table (also referred to as the mortality
table) allows us to determine chances of
survivorship (and death) and average remaining
years of life (life expectancy), for specific years of
age.
Life tables are usually constructed separately for
men and for women because of their
substantially different mortality rates
Life table explained:
The life table shows for each age x
? ? : the number of persons surviving to age x
(assuming we start with a base of 100,000 new born
individuals)
? ? : the life expectancy at age x
Using life tables to determine life expectancy and
survival probabilities
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Male Life Table*
x l x e x
Age no. years
0 100,000 80.3
1 99,615 79.6
2 99,581 78.6
…
55 94,090 27.9
56 93,672 27.0
57 93,220 26.1
58 92,733 25.3
59 92,209 24.4
60 91,645 23.5
61 91,035 22.7
62 90,374 21.9
63 89,657 21.0
64 88,879 20.2
65 88,034 19.4
…
80 62,162 8.7
…
90 24,185 4.2
Source: Australian Bureau of Statistics, 3302.0.55.001 - Life Tables, Table 1.9 Life Tables, Australia, 2012–2014.
http://www.abs.gov.au/ausstats/abs@.nsf/mf/3302.0.55.001. Note: Life tables are updated and published regularly.
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Life table explained:
The life table shows for each age x
? ? : the number of persons surviving to age x
(assuming we start with a base of 100,000 new born
individuals)
? ? : the life expectancy at age x
e.g. Life expectancy at birth
? ? (where x=0) ? 0 = 80.3
Interpretation: a new born boy can expect to live, on average,
until age 80.3
e.g. Life expectancy at a particular age (e.g. 55, 65)
? ? (where x=55) ? 55 = 27.9
Interpretation: a man reaching age 55 today can expect to live,
on average, for another 27.9 years, i.e. until age 82.9 (27.9 + 55)
? ? (where x=65) ? 65 = 19.4
Interpretation: a man reaching age 65 today can expect to live,
on average, for another 19.4 years, i.e. until age 84.4 (19.4 + 65)
Using life tables to determine life expectancy and
survival probabilities
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Male Life Table*
x l x e x
Age no. years
0 100,000 80.3
1 99,615 79.6
2 99,581 78.6
…
55 94,090 27.9
56 93,672 27.0
57 93,220 26.1
58 92,733 25.3
59 92,209 24.4
60 91,645 23.5
61 91,035 22.7
62 90,374 21.9
63 89,657 21.0
64 88,879 20.2
65 88,034 19.4
…
80 62,162 8.7
…
90 24,185 4.2
Source: Australian Bureau of Statistics, 3302.0.55.001 - Life Tables, Table 1.9 Life Tables, Australia, 2012–2014.
http://www.abs.gov.au/ausstats/abs@.nsf/mf/3302.0.55.001. Note: Life tables are updated and published regularly.
The longer you live, the longer you can expect to live!
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Life table explained:
The life table shows for each age x
? ? : the number of persons surviving to age x
(assuming we start with a base of 100,000 new born
individuals)
? ? : the life expectancy at age x
e.g. What is the chance that a 55 year old male
will live at least another 10 years?
? 55+10
? 55
=
? 65
? 55
=
8834
94,090
= 93.6%
e.g. What is the chance that a 55 year old male
will live until age 80 and 90?
? 80
? 55
=
62,162
94,090
= 66.1%
? 90
? 55
=
2185
94,090
= 25.7%
Using life tables to determine life expectancy and
survival probabilities
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Source: Australian Bureau of Statistics, 3302.0.55.001 - Life Tables, Table 1.9 Life Tables, Australia, 2012–2014.
http://www.abs.gov.au/ausstats/abs@.nsf/mf/3302.0.55.001. Note: Life tables are updated and published regularly.
Male Life Table*
x l x e x
Age no. years
0 100,000 80.3
1 99,615 79.6
2 99,581 78.6
…
55 94,090 27.9
56 93,672 27.0
57 93,220 26.1
58 92,733 25.3
59 92,209 24.4
60 91,645 23.5
61 91,035 22.7
62 90,374 21.9
63 89,657 21.0
64 88,879 20.2
65 88,034 19.4
…
80 62,162 8.7
…
90 24,185 4.2
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Furthermore, people under estimate their own life
expectancy
Results of survey on retirement planning revealed*:
Men in their 50s
Underestimated lifetime (compared to the Life Tables) by 6
years on average
Men in their 60s
Close to improved life table expectations
Women in their 50s
Underestimated lifetime by 7 years on average
Women in their 60s
Underestimated lifetime by 5 years on average
*May 2011, Retirement Planning Survey (Agnew, Bateman, Thorp)
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Why does it matter if people underestimate their
own life expectancy?
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Why does this matter?
Even with higher retirement ages it is likely that people
will spend more time in retirement than they expect
15 20 25 30
Ireland
Japan
Denmark
US
Greece
New Zealand
Canada
UK
Australia
Italy
Germany
Finland
France
Female
2010 2030
-30 -25 -20 -15
Male
2000
Expected number of years
spent in retirement
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If retirees underestimate the amount of time they are going to
live in retirement they may spend too much, too quickly
Source: Fidelity Investments. Hypothetical value of assets held in an untaxed account of $500,000 invested in a portfolio
of 50% stocks, 40% bonds, and 10% short-term investments with inflation-adjusted withdrawal rates as specified.
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Longevity risk – key points
Longevity risk is the risk of living longer than expected and outliving
one’s savings
Life expectancy at older ages is increasing
Higher estimated life expectancy is not reflected in ‘standard’ life
tables
Lifespan is very difficult to predict with any certainty, but we know
that many people will live longer than they expect
Planning approaches based on living to a specific age (often set in
reference to average live expectancy) will be inadequate for around
half of all retirees
For current retiree couples – at least one of a retiree couple could live
well into their 90s
Retirement plans need to cater for an uncertain and longer than
expected life
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What do planners need to know?
Lifetimes are difficult to predict for individuals
Longevity has increased over time and medical break
throughs could bring additional improvements in mortality
Planning to live to the average life expectancy will be
inadequate for about half of retirees
Retirees need to plan for their ‘unknown’ but very likely
longer than expected lifetime
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Take the test - how long will you live?
http://www.mylongevity.com.au/
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5. Inflation risk
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Inflation risk
The risk of erosion of purchasing power
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Inflation risk
The risk of erosion of purchasing power
Inflation increases the future costs of goods and
services, erodes relative purchasing power, which
needs to be maintained in order to maintain a
consistent standard of living
Inflation is difficult to predict more than a few years
out, which is a problem when you are saving over a
working life of several decades, and then arranging
retirement income to cover a further two decades
or more
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Inflation risk
The inflation rate is now stable and historically low, but has
been much higher in the past, often for extended periods
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Inflation risk
The inflation rate is now stable and historically low, but has
been much higher in the past, often for extended periods
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Inflation risk
Even low rates of inflation can seriously erode the well-being of retirees who
live many years, a period of unexpectedly high inflation can be devastating for
those living on a fixed income.
Impact of inflation on a non-indexed retirement benefit of $50,000 p.a.
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
0 5 10 15 20 25 30
2% 5% 10%
$50,000
$27,831
$11,297
$2,355
$33,380
$17,924
$6,079
$40,854
$29,937
$17,434
Inflation
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Inflation risk
The Age Pension provides benefits that are increased in line
with inflation
However, private retirement savings (e.g. superannuation)
typically offer no automatic inflation projection
0
5
10
15
20
25
30
1% 2% 3% 4% 5%
NUM OF YEARS IN RETIREMENT
(COMFORTABLE LIFESTYLE)
INFLATION
Assumptions: Number of years a representative investor, who relies on superannuation guarantee contributions
only, is able to maintain a comfortable lifestyle in retirement. Assumptions: Starting Salary = $60,000, Salary
increase = 4%, Investment return = 5%, Comfortable lifestyle - Single $42,000 (in 2014 dollars)
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Inflation risk
Many investors try to own some assets whose value may
grow in times of inflation (e.g. equities, properties,
commodities), however, this sometimes results in trading
inflation risk for investment risk
Retirees should set aside assets that will permit a gradual
increase in consumption, and/or consider investing in
inflation-protected securities (e.g. inflation-indexed Treasury
bonds) and retirement benefit products with a cost-of-living
adjustment feature (e.g. inflation-indexed annuities)
In addition, retirees can choose to continue working - even if
it is only on a part-time basis (earnings tend to increase in
line with prices) subject to employment risk
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Inflation risk – key points
Inflation increases the future costs of goods and services –
which will erode the purchasing power of fixed income
Holding shares and property do not necessarily provide
insurance against increases in inflation
The inflation rate is low and stable now, but has been high an
unstable in the past
Inflation is difficult to predict more than a few years out
Even low rates of inflation can seriously erode the well-being
of retirees who live many years
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11. Implications of risks for retirement
planning
Jumping ahead………
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Impact of retirement risks – a simple example
Consider the following 3 retirees:
Kim receives the Age Pension. This is currently pays $19,916 per
annum and is indexed to the consumer price index. Kim has few
assets and will receive the Age Pension for as long as she lives.
John has $500,000 in a cash option in a superannuation fund and
draws down 7% of capital each year. He has no other income or
assets. [For now ignore the Age Pension and any superannuation
rules]
Ada has $500,000 invested in a balanced option in a
superannuation fund and draws down 7% of capital each year.
She has no other income or assets. [For now ignore the Age
Pension and any superannuation rules. The balanced option is
invested 70% in equities and 30% in cash and fixed interest]
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To what extent are these retirees covered for the
key retirement risks?
Kim - Age Pension John - Term deposit Ada - Equities
Employment risk
Longevity risk
Inflation risk
Investment risk
Contingency risk
Default risk
Political risk
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To what extent are these retirees covered for the
key retirement risks?
Kim - Age Pension John - Term deposit Ada - Equities
Employment risk NO NO NO
Longevity risk YES NO NO
Inflation risk YES NO NO
Investment risk
Contingency risk
Default risk
Political risk
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Main takeaways
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Topic 3 - Key Themes
1. Retirees goals will (should?) include an income target, preserving
capital and risk management
2. Near to and actual retirees face a number of economic, financial
and other risks including – replacement risk, employment risk,
longevity risk, inflation risk, investment risk, contingency risk,
default risk, political risk
3. Retirement plans should cater for these risks:
I. Many people do not retire when expected due to health
conditions, job loss, carer responsibilities
II. Lifetimes are difficult to predict, but those who live longer than
expected may outlive their savings
III. Inflation erodes savings and reduces future spending power.
Continuation of low inflation is not guaranteed
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代写 UNSW ACTL5401 Retirement Planning