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On this episode of The nestegg Podcast, host Maja Garaca Djurdjevic and three experts discuss the latest in equities, property investing and super.

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Steve Waters, director of Right Property Group, chats about the subdued April price growth and how prices are predicted to move for the remainder of the year.

RMIT’s senior lecturer of finance, Dr Angel Zhong, talks about the Biden climate summit and impacts on the Australian sharemarket, as well as the possibility of a carbon border tax and what it means.

And lastly, tax and super guru Timothy Munro gives his thoughts on the overhaul of the superannuation performance test and the upcoming budget.

Have a question for our experts? Get in touch at [email protected] and you might get featured on the next episode.

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Has the property market reached its peak; Biden’s climate summit and our share...

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There is $17.5 billion in lost and unclaimed super across ...

Retirement

Are staggered annuities the stairway to retirement heaven?

By Lucy Dean

March 06 2018
Share

Retirement

Are staggered annuities the stairway to retirement heaven?

By Lucy Dean
March 06 2018

They are retirement’s litany of challenges; inflation and interest rates, longevity risk and inheritance provisions, but according to a Wharton University academic, staggered annuities could be the solution.

Are staggered annuities the stairway to retirement heaven?

By Lucy Dean

March 06 2018
Share

Speaking on Monday, Dr David Babbel said the rules around a retirement balance 10 times annual income and a draw-down rate of 4 per cent a year were flawed as they failed to take into account the impact of inflation on actual spending power.

Further, as people live longer there’s a very real risk that they will outlive savings, he continued. In fact, he argued that planning for life expectancy when making savings plans is akin to playing “Russian roulette”.

The solution, he explained at a CommInsure briefing in Sydney, is a combination of a bucket and staggered annuities approach.

“Economists and other rational people have recognised for a long time the value of annuities in retirement planning. There are some drawbacks though,” Dr Babbel said.

“The main drawback is you don't know what the purchasing power will be as you get older, and I have solved that.

“There are two ways to solve that. CommInsure and Challenger have solved it with inflation indexing, I solved it in a different way which allows us to keep control over a good portion of our money in the short-term annuities [because] we can cash it out in a lump sum any time we want, or we can turn it into an annuity.”

He argued that by buying a range of annuities with specific purposes, like immediate income, deferred income, rainy day and early inheritance, retirees have the power to switch on the annuity schemes as needed.

Dr Babbel suggested a lifetime annuity would form the immediate income while the deferred income would be used to purchase new lifetime annuities as required (or every five years) and a rainy day bucket to meet extra needs.

It’s the strategy he uses, although he admits that there is a limited exposure to rising interest rates and there can be difficulty in purchasing annuities as the buyers age.

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