Retirement income - avoiding 'regret risk'
It's the hidden trap that sees many retirees wish they could turn back time. Patrick Clarke, general manager of retirement solutions at Generation Life, lifts the lid on regret risk.
Australians are good at growing their super. We're not so good at switching from the accumulation phase to spending our super in retirement.
That's largely because of FORO - the 'fear of running out' of money. And it's understandable. Today's retirees may need to stretch their super over 20, even 30, years of retirement.
Retirees often try to reduce longevity risk by saving their savings - living frugally, instead of relishing retirement.
This has fuelled regret risk. That's when retirees realise all too late that they've missed the boat to go harder on super savings at an early stage, when they were better placed physically to enjoy the lifestyle pursuits we dream of in retirement. Fortunately, there is a solution.
Lifetime annuities can hold the key
More than four in five retirees invest their super in an account-based pension. It's an appealing option with tax-free returns and the flexibility to make lump-sum withdrawals.
The downside is no guarantees about how long the money will last. That's where lifetime annuities can make a difference.
Lifetime annuities pay an income guaranteed for life
When an annuity is purchased with super savings, investment returns and the income received are tax-free.
Even better, usually only 60% of a lifetime annuity is included in the age pension assets test.
The drawback is less flexible access to your money.
That's why an account-based pension combined with a lifetime annuity can provide the best of both worlds - income for life plus flexible access to super savings.
Lifetime annuities have evolved
Lifetime annuities, which are offered by some super funds as well as leading life insurance companies like Generation Life, have come a long way in recent years.
Every lifetime annuity now pays a death benefit - either passing on the income stream to a spouse or paying a lump sum to other beneficiaries.
More recently, we've seen the rise of investment-linked lifetime annuities. These still offer income for life but have the added opportunity of the investment growing over time depending on the chosen investment options.
More bang for your super buck
If you're in or near retirement, it's worth taking a fresh look at lifetime annuities.
Coupled with an account-based pension, annuities can give you the confidence to embrace a rewarding lifestyle without regrets about missing out on everything retirement has to offer.
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