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Investments, Retirement

Plan asset allocation as if you’ll live to 100

retirees asset allocation

Retirees should plan on living to 100 and adjust their asset allocation away from growth assets and toward defensive the closer they get to that figure.

Retirees should adopt a ‘100-year strategy’ when looking at balancing their asset allocation between growth and defensive investments, according to a boutique wealth management business.

Clime Asset Management income portfolio manager Vincent Chin said retirees should start with the number 100 and then subtract their age and the remaining number should be their allocation to growth assets.

“This is a real common-sense approach to asset allocation. For example, a 50-year-old should have 50 per cent in growth and income assets. This approach makes sense because when you reach 85, what is required is only some growth assets and the rest in income or defensive assets,” Chin said.

“If you think this approach is not conservative enough, because we are living longer, start with 110 as the initial figure,” he added, pointing out many children born this year are likely to live to 100.

His comments were made as part of a recent media briefing in Sydney on the topic of fixed income investments and Clime chief executive Rod Bristow said the current low interest environment was likely to be the new normal for some time.

“This is a big risk we are facing and when we are thinking about investments we look at reasonable examples to help us understand our investment thesis,” Bristow said.

“The best example is Japan, which has been in an environment with very low rates for a long period of time which has caused significant issues with that economy being unable to recover and inflate its way into future growth.”

Chin said the current interest rate position is likely to remain and the recent history of high rates is an outlier when considered over longer time frames.

“If you look at interest rates over the very long term, such as a few hundred years, you will find the high rates of the 1970s and ‘80s is an aberration,” he said.

“Going back a few hundred years, rates were lower, and people who have lived through the 1970s and ‘80s are now in their 50s and 60s, and if they are in politics or finance, they are the people in power. It is hard to change that mindset as these people will always say inflation will come back and will go up.”

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