Upload
10x-investments
View
1.256
Download
0
Tags:
Embed Size (px)
DESCRIPTION
This presentation covers questions such as What happens to your members when they leave? When is a living annuity better?
Citation preview
An Optimal Retirement Default
Tracy Jensen, July 2013
What happens to your members when they leave?
VIDEO GOES HERE
HEADINGIt’s all about the goal
Options?What is the goal?
Income
Term
Affordability
Inflation
Longevity
Flexibility
Estate
HEADINGIt’s all about the goal
Options?What is the goal?
Income
Term
Guaranteed annuity Living annuityInflation-linked Portfolios:Low equity
Medium equityHigh equity
Fees: 1% vs. 3%
HEADING
Which annuity is best?
Framework
Assumptions
Retirement age: 65 years old
Male Female
Draw down: 6.5% 5.6%
Male Female
Life expectancy: 17 years 21 years
Set incomes equal
=
Compare term
HEADINGLiving annuity projection - Male
*Projection between 10th & 90th percentile Source: 10X Investments, Dimson, Staunton, Marsh
HEADINGLiving annuity projection - Male
*Projection between 10th & 90th percentile*Projection between 10th & 90th percentile Source: 10X Investments, Dimson, Staunton, Marsh
HEADINGLiving annuity projection - Male
*Projection between 10th & 90th percentile*Projection between 10th & 90th percentile Source: 10X Investments, Dimson, Staunton, Marsh
HEADINGLiving annuity projection - Male
*Projection between 10th & 90th percentile*Projection between 10th & 90th percentile Source: 10X Investments, Dimson, Staunton, Marsh
HEADINGLiving annuity projection - Male
*Projection between 10th & 90th percentile*Projection between 10th & 90th percentile Source: 10X Investments, Dimson, Staunton, Marsh
Probability of living annuity doing better:Low equity 27%Medium equity 44%High equity 53%
Probability of living annuity doing better:Low equity 9%Medium equity 24%High equity 34%
HEADINGLiving annuity projection - Female
*Projection between 10th & 90th percentile Source: 10X Investments, Dimson, Staunton, Marsh
HEADINGLiving annuity projection - Female
*Projection between 10th & 90th percentile Source: 10X Investments, Dimson, Staunton, Marsh
HEADINGLiving annuity projection - Female
*Projection between 10th & 90th percentile Source: 10X Investments, Dimson, Staunton, Marsh
HEADINGLiving annuity projection - Female
*Projection between 10th & 90th percentile Source: 10X Investments, Dimson, Staunton, Marsh
HEADINGLiving annuity projection - Female
*Projection between 10th & 90th percentile Source: 10X Investments, Dimson, Staunton, Marsh
Probability of living annuity doing better:Low equity 30%Medium equity 56%High equity 65%
Probability of living annuity doing better:Low equity 6%Medium equity 28%High equity 42%
Fees of 1% pa
When is a living annuity better?
Low equity Medium equity High equity
Male
Female
Fees of 3% pa
Low equity Medium equity High equity
Male
Female High fees ruin your
retirement!
Low fees + high equity are optimal in a living annuity
Living annuities are better for females than
males
HEADING
Example using a 5% draw-down
Standard industry projection – no fees – no volatility
Industry projections lead to mis-selling
Source: 10X Investments, Dimson, Staunton, Marsh
HEADING
Example using a 5% draw-down
Standard industry projection – no fees – no volatility
Add in fees of 3%
Industry projections lead to mis-selling
Source: 10X Investments, Dimson, Staunton, Marsh
HEADING
Example using a 5% draw-down
Standard industry projection – no fees – no volatility
Add in fees of 3%
Add in volatility
Industry projections lead to mis-selling
Source: 10X Investments, Dimson, Staunton, Marsh
HEADING
Example using a 5% draw-down
Standard industry projection – no fees – no volatility
Add in fees of 3%
Add in volatility
Add in 80% confidence
Industry projections lead to mis-selling
Source: 10X Investments, Dimson, Staunton, Marsh
HEADING
What is your goal?
1.Income = 5% draw-down pre fees
2.Term = 25 years
10X Retirement Calculator: probability of meeting your goal
Source: 10X Investments, Dimson, Staunton, Marsh
HEADING
Fees of 1% pa:
Low equity: 35%
Source: 10X Investments, Dimson, Staunton, Marsh
10X Retirement Calculator: probability of meeting your goal
Fees of 3% pa:
Low equity: 5%
HEADING
Fees of 1% pa:
Low equity: 35% Medium equity: 60%
Source: 10X Investments, Dimson, Staunton, Marsh
Fees of 3% pa:
Low equity: 5% Medium equity: 30%
10X Retirement Calculator: probability of meeting your goal
HEADING
Fees of 1% pa:
Low equity: 35% Medium equity: 60% High equity: 75%
Source: 10X Investments, Dimson, Staunton, Marsh
Fees of 3% pa:
Low equity: 5% Medium equity: 30% High equity: 50%
10X Retirement Calculator: probability of meeting your goal
HEADING
Fees of 1% pa:
Low equity: 35% Medium equity: 60% High equity: 75%
Source: 10X Investments, Dimson, Staunton, Marsh
Fees of 3% pa:
Low equity: 5% Medium equity: 30% High equity: 50%
10X Retirement Calculator: probability of meeting your goal
HEADING
What maximises the probability of meeting your goal?
High equity
+
Low fees
Source: 10X Investments, Dimson, Staunton, Marsh
10X Retirement Calculator: probability of meeting your goal
HEADING
1. When is a living annuity best?
Low fees (1% pa) and
High fees (3% pa) ruins your retirement!
Summary – an optimal default
Low equity Medium equity High equity
Male
Female
HEADING
2. Things are not always what they seem
Summary – sensible projections
HEADING
2. Things are not always what they seem
Projections must account for:
Fees
Volatility
Confidence
Summary – sensible projections
HEADING
3. Are the tools available helping or hindering your members?
Summary – meaningful tools
Fees of 1% pa:
Medium equity: 60% High equity: 75%
Thank you