I recently had the pleasure of discussing the above approach with Martiens Barnard, Head of Technical Marketing, and Fränzo Friedrich, Head of Marketing at Momentum Investments
We unpacked the complexities of retirement products, both traditional and emerging. Retirement planning and product choices can be overwhelming, with numerous variables to consider, including personal circumstances, investment timelines, and evolving financial landscapes. This conversation provides insight into the challenges retirees face, the need for guaranteed income solutions, and the role of technology in facilitating informed decision-making.
Understanding Traditional Retirement Products – Fränzo Friedrich sets the stage by highlighting the importance of proper retirement planning. He underscores that contributing only to a workplace pension fund is typically insufficient for comprehensive retirement funding. To address this issue, individuals often turn to various retirement products, including retirement annuities, tax-free investments, and pension preservation funds. These instruments, combined with investment solutions, help build a financial cushion for retirement.
A significant challenge is that people tend to underestimate how long they will live in retirement. As life expectancies increase, it is crucial to consider more comprehensive retirement funding strategies. Retirement annuities and tax-free investments, which offer tax incentives, are popular choices for accumulating retirement wealth.
Fränzo adds that one unique strategy is to use tax-free investments to provide for a child’s retirement. By investing consistently from birth to the contribution limit, the accumulated amount can potentially fund the child’s retirement comfortably. This approach encourages a shift in thinking about retirement planning, aligning it with one’s values and the needs of future generations.
Fränzo emphasizes a noticeable trend among retirees – An increasing preference for guaranteed income solutions over market-exposed options. This shift is a response to market volatility and the need for financial stability during retirement. A guaranteed income stream helps cover essential life expenses like housing, healthcare, and groceries.
Martiens Barnard explains that while traditional living annuities, which expose retirees to market risk, remain popular, the higher-interest-rate environment has led to a surge in life annuities, which provide guaranteed income. However, life annuities have their limitations, such as limited inheritance for beneficiaries.
Introducing Hybrid Solutions – To address the evolving needs of retirees and provide more flexibility, Momentum Wealth provides retirees the opportunity to use their living annuity as a hybrid annuity by selecting a life annuity (referred to as a Guaranteed Annuity Portfolio) as a component within their living annuity.
This approach combines the best of both worlds, ensuring retirees have financial security from the Guaranteed Annuity Portfolio as it pays a guaranteed income for as long as the retiree is alive, while still having exposure to market growth and the flexibility to make changes to the overall single income stream.
The Hybrid Annuity Solution – The hybrid annuity solution created by Momentum Wealth was designed so that clients do not have to choose between an uncertain or an inflexible income stream. Momentum believes that essential life expenses, such as rent, groceries, and healthcare should be covered by the Guaranteed Annuity Portfolio. This leaves the remaining money to be invested in a way that captures potential market gains so that it can fund the excess income needed for the more discretionary living expenses such as holidays or traveling.
The Power of Technology – Technology plays a crucial role in helping financial advisors educate clients about these complex concepts. Momentum Wealth has developed the Income Illustrator to help advisors demonstrate the potential impact of integrating a Guaranteed Annuity Portfolio into a living annuity. This tool enables advisors to quantify the optimal allocation of money into a Guaranteed Annuity Portfolio, ensuring that retirees enjoy financial security while still participating in potential market growth.
Approaching Retirement Planning – For financial advisors, educating clients about these new retirement strategies is essential. Early engagement and education about the pros and cons of various retirement products can empower individuals to make well-informed decisions. Retirement is a long-term journey, and understanding the implications of each choice is crucial.
Fränzo Friedrich suggests that the introduction of guaranteed income solutions can provide a level of financial security for retirees to maintain their essential expenses while still enjoying market-based returns for their discretionary spending. This balance ensures that retirees can maintain their financial independence throughout their retirement years.
The landscape of retirement planning is evolving, with innovative solutions emerging to address the changing needs of retirees. The introduction of the Guaranteed Annuity Portfolio provides the opportunity to combine guaranteed income and market exposure, giving retirees greater flexibility and financial security. Technology plays a pivotal role in helping financial advisors educate their clients about these complex strategies.
By starting the education process early and quantifying the benefits of using a hybrid solution, advisors can empower individuals to make more informed decisions, ensuring financial stability and independence in retirement.