Why certainty is so important in retirement

Retirement is a time of great anticipation and excitement, but also carries with it a fair share of uncertainty. Which is hardly surprising after all; the transition from receiving a steady income to relying on savings and investments is a daunting prospect for many.

Extensive research has been conducted into retiree concerns, with three key concerns consistently coming out on top:

running out of money
facing unexpected health and aged care costs
not being able to maintain a comfortable standard of living in retirement.

In other words, not knowing what’s waiting for us in the future – or uncertainty.

Uncertainty is impacting quality of life in retirement

The investment strategies and products that have served so well in accruing assets via super don’t necessarily provide the kind of financial certainty Australians want (and need) in retirement.

It doesn’t help that super has long been framed as a ‘nest egg’ to fund our retirement – a label that is hard to shake off in the retirement phase. After being told all our working lives to grow our savings for retirement, studies show that many retirees are reluctant to draw it down, opting instead to spend less and preserve as much of it as possible in the face of an uncertain retirement timeframe.

The upheavals of recent years have also played a significant role in the diminishing drawdown of savings that we are seeing. Uncertainty about market volatility, about inflation and the cost of living, uncertainty about unplanned future expenses – all of these influence a person’s financial confidence going into retirement.

Ultimately, this has a tangible impact on the quality of life in retirement; not only is uncertainty depriving many older Australians of a lifestyle they can actually afford, but the considerable financial concerns carried into post-work life impacts their physical, mental and emotional wellbeing.

The current approach to retirement income

Today, more than ever, retirees want the confidence to spend and enjoy the continuity of their lifestyle. For this, they need certainty and flexibility from their investment strategies, as well as solutions to the unpredictable financial outcomes they’ll likely face in retirement.

At one end of the spectrum, account-based pensions provide flexibility but can leave retirees shouldering significant investment and longevity risk and fail to fully address the financial fears held by retirees.

At the other end, traditional lifetime annuities involve trade-offs between income certainty and flexibility and are often limited in terms of how one can invest, withdraw or use their money.

The Age Pension, upon which many Australians rely once their retirement savings are exhausted, barely provides enough income to sustain a subsistence level of retirement.

As life expectancies increase and living costs rise, the strategies and products currently available are becoming less effective in addressing the need for certainty. With the retirements of 4.2 million plus Australians¹ at stake, new and innovative income solutions are urgently needed to complement existing products and strategies. Next-generation income solutions that provide certainty.

Rethinking income sources in retirement

A 2022 Actuaries Institute report² noted that combining traditional products with innovative solutions could lead to a remarkable 30 percent increase in retirement income.

Further, the report noted that methods, such as using investment-linked lifetime income streams, have been shown to lift retirement income without increasing longevity risk: a win-win outcome that would see Australian retirees benefit from larger payments and a better quality of life without increasing the likelihood of outliving their savings².

The next generation of retirement products must improve on earlier efforts, with outcome-oriented solutions designed around core features, including:

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Protected growth	Retirees can benefit from growth and a downside protection mechanism limiting risk exposure, while offering the potential for the capital growth necessary to fund longer retirement periods.
Guaranteed lifetime income	Backed by regulated life companies with strong balance sheets and capital reserves, guaranteed income payments will be paid for the life of the retiree.
Flexible access to savings	Retirees can withdraw all or part of their account balance at any time so that unexpected expenses can be quickly and easily met
Control	A range of investment and protection options to suit investors as their needs and tolerance to risk changes.
Seamless integration	Integration into a super fund or an ABP will make administration easier for retirees, financial advisers and super funds.
Investment Value payable on death	Retirees can leave their residual investment value to beneficiaries.

Recently, we have seen an emergence of innovative retirement solutions designed to pay a guaranteed income for life with more flexibility in their design. These next-generation lifetime income solutions have been designed to provide income certainty, flexibility and the ability to access capital whenever needed.

Providing income certainty – for life

Allianz Retire+ is driven by the belief that Australians should be able to live their lives with certainty and not have to worry about tomorrow’s ‘what ifs’, market volatility or whether they’ll have enough money for the future.

Allianz Guaranteed Income for Life (AGILE) is a next-generation retirement income solution that delivers certainty in the form of a guaranteed income for life – and it has the potential to transform retirement.

AGILE provides the certainty that comes from combining a protected investment with the potential for performance growth with a guaranteed lifetime income:

Certainty of locking in a known rate at the time of starting the investment, with guaranteed annual increases every year an investor waits to access their lifetime income
Certainty of receiving guaranteed income payments for life – however long that may be
Certainty of having investments partially or fully protected against market downturns while in the Growth Phase, and fully protected in the Lifetime Income Phase
Certainty of having access to the investment value at any time to cover unplanned expenses³
Certainty of having beneficiaries receive the investment value in the event of death⁴

Allianz Retire+ is delivering next-generation retirement products that meet the evolving needs of retirees. Our lifetime income solution provides the certainty, flexibility and protection that enables older Australians to enjoy the retirement they have worked all their lives for.

1 Australian Institute of Health and Welfare, ‘Older Australians’, 20 November 2023.
2 Actuaries Institute, ‘Actuaries develop a framework for maximising retirement income’, 26 April 2022.
3 During both Growth and Lifetime Income Phases, investors are free to make Full or Partial Withdrawals from their Investment Value at any time. During the Growth Phase, investors have access to a Free Withdrawal Amount (FWA) equal to 5% of their initial Investment Amount, available annually. Withdrawals in the first 10 years may be subject to a Market Value Adjustment. Withdrawals will also reduce their potential Lifetime Income Payments. If an investor selects the Age Pension+ Option, they will no longer have access to the FWA in the Growth Phase, and the available Withdrawal Value will be limited to the maximum amount allowable under the social security Capital Access Schedule.
4 If the investor chooses the Age Pension+ Option, the amount payable on death will be subject to a maximum known as the Age Pension+ Maximum Benefit on Death, which may be greater or less than their Investment Value at that time.

This material is issued by Allianz Australia Life Insurance Limited, ABN 27 076 033 782, AFSL 296559 (Allianz Retire+). Allianz Retire+ is a registered business name of Allianz Australia Life Insurance Limited. This information is current as at March 2024 unless otherwise specified and is for general information purposes only. It is not comprehensive or intended to give financial product advice. Any advice provided in this material does not take into account your objectives, financial situation or needs. Before acting on anything contained in this material, you should speak to your financial adviser and consider the appropriateness of the information received, having regard to your objectives, financial situation and needs. No person should rely on the content of this material or act on the basis of anything stated in this material. Allianz Retire+ and its related entities, agents or employees do not accept any liability for any loss arising whether directly or indirectly from any use of this material. Past performance is not a reliable indicator of future performance. Use of the word ‘guarantee’ in this material refers to an assurance that certain conditions or contractual promises will be fulfilled by Allianz Retire+ from the available assets of its Statutory Fund No 2, in relation to the product terms. This includes ‘guaranteed’ income payments in the Lifetime Income Phase which will be paid from the available assets of Statutory Fund No 2, noting that Allianz Retire+ may terminate the product in certain limited circumstances as outlined in the Product Disclosure Statement referred below. Allianz Australia Life Insurance Limited is the issuer of Allianz Guaranteed Income for Life (AGILE). Prior to making an investment decision, investors should consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) which are available on our website (www.allianzretireplus.com.au). PIMCO provides investment management and other support services to Allianz Retire+ but is not responsible for the performance of any Allianz Retire+ product, or any other product or service promoted or supplied by Allianz. Use of the POWERED BY PIMCO trade mark, or any other use of the PIMCO name, is not a recommendation of any particular security, strategy or investment product.

Why Certainty Is So Important In Retirement