How to build a retirement empire: Four lessons from Ancient Rome

Retirement is set to be the issue of the decade. Today, more than four million Australians are in retirement, while another 2.5 million are set to join their ranks over the next 10 years.

While there has long been a focus on accumulating savings for your golden years, there is now an urgent need to shift priorities to delivering reliable retirement income over the long-term.

While our pool of superannuation savings is now over $4 trillion, funds continue to struggle with converting savings into an income stream that lasts.

With more members than ever before reaching retirement, delivering better retirement income options is a top priority.

Retirement, the Roman way

The concept of retirement income is not new - it's an idea that has stood the test of time. Back in Ancient Rome, retired soldiers were handed pensions to enjoy a peaceful post-service life - or at least as peaceful as it got in the empire.

Much like Australia today, these pensions were lump sums. Queue the Roman's clever twist: the 'annua' or lifetime annuity, a regular payment for life in exchange for an up-front lump sum. Some soldiers, perhaps wary of splurging their entire pension on amphorae and chariots, opted for a steady income stream, creating one of history's earliest annuity markets.

Thankfully, today's lifetime annuities have evolved well beyond their Roman origins.

Firstly, modern Australians are now better equipped thanks to our superannuation system. However, this savings pool doesn't automatically include an income stream.

We have the Age Pension, but it only provides a safety-net below even a modest standard of living for many people.

The role of superannuation is to deliver a better lifestyle for Australians in retirement. Yet, recent research from Mercer shows while we are doing a good job of building the savings, allocating this to retirement income still needs work.

History is our best teacher

For funds and retirees, alike, we can help futureproof our golden years by learning some important lessons from the past.

Lesson 1: Immediate estate benefits

Modern annuities come with perks the Romans could only dream of, including a death benefit.

Today, if a retiree doesn't live to their life expectancy, their estate will, in most cases, receive a partial or full refund of the original investment.

Think of it as a way to leave a little extra for loved ones, without the hassle of chiseling it into a marble tablet.

Lesson 2: Not an all or nothing proposition

In the UK, retirees were once required to convert all their savings into an annuity - this is often not the best approach and has created a widespread misunderstanding about annuities.

Luckily, in Australia, we can mix and match. The best approach is usually to allocate a portion to a lifetime annuity and keep the majority of savings in an investment portfolio.

This provides retirees with the security they need over the long-term alongside the flexibility they want to enjoy their retirement years. This means they can spend confidently in early-retirement, even splurging on that dream vacation, knowing their needs are sorted for a lifetime.

Lesson 3: Returns need not be sacrificed

Many new lifetime income streams are invested in a diversified portfolio. This enables retirees to also benefit from market investments, with income increasing through market gains over time.

For retirees who want guaranteed cost-of-living protection from a CPI-linked lifetime annuity, this diversified portfolio approach enables investments for growth to be maintained by swapping other defensive assets for the annuity.

For the many retirees who receive a partial Age Pension, the interaction with the assets test can result in an income boost equivalent to an additional 3% return.

That can both increase the income available to spend today, and extend the life of the investment portfolio, creating a double bonus for the retiree.

Lesson 4: Not all roads lead to Rome

It is important to remember that you have choices in retirement, and annuities will not be the right fit for everyone.

For some retirees, their risk tolerance will allow them to keep everything in the market without the safety net an annuity or bank deposit can offer.

Others may value the safety net but find they have enough protection without an annuity. Perhaps their basic lifestyle can be supported on the Age Pension.

While, for others, they may have accumulated enough wealth to support their retirement years. If something doesn't go to plan, the issue isn't a reduction in spending, but rather tapping the kids' inheritance.

Remember, not all roads lead to Rome. Lifetime annuities are one way to help retirees enjoy the best bits of retirement without the fear of running out.

However, it is important to seek advice from a trusted professional to ensure you have the income and protection in place that best aligns with your retirement goals.

Time to build your retirement empire?

The number one challenge for retirees today is adjusting their mindset from building a nest egg to enjoying the fruits of their labour.

We need to empower retirees with the confidence to spend their savings, knowing their basic needs will be taken care of for life.

A steady, reliable income for the duration of retirement is the way to achieve this, and lifetime annuities can be part of the solution.

The Roman empire may not have lasted, but the wisdom behind its ideas will continue to benefit retirees for generations to come.

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