Making Choices for Post-retirement

劉靜媛

This article draws on provide different post-retirement choices. Some of the issues considered include：

Post-retirement plan horizons

Product types and liabilities

Matching assets and liabilities

This article primarily focuses on Australians who are long-term employed and approaching retirement age. The studies considered are based on samples of the general population and not linked to specific employees and employers.

Insights into post-retirement plan horizons

Many people who are consider the length of time about their post-retirement plan is shorter than their expected lifetime. From the data of life expectancy （years） at birth by sex， 1881–1890 to 2013–2015， it shows that in Australia， a male in 2013–2015 can expect to live to the age of 80.4 years and a female would be expected to live to 84.5 years compared to 47.2 and 50.8 years respectively， in 1881–1890. Since the expected lifespan is longer than before in recent years， and people are suffering the longevity risk according to recent studies， so the person require more investment choices to save for retirement. In addition， too many people do not do much post-retirement planning. So， this article is helpful to someone are approaching retirement age or at retirement age.

Savings accounts

Mutual funds

A mutual fund is an investment method which consists of a pool of money combined by many investors for the objective of investing in securities such as bonds， stocks， money market instruments such as market index and other assets such as residential properties. The mutual funds are classified into different categories， and the largest is the fixed interest funds， which pay a fixed rate of return， such as government bonds， corporate bonds or other debt instruments. Another is the index funds such as the S&P 500 or the ASX 200. The equity funds， balanced funds and specialty funds such as real estate or commodities.

Pros

The funds are managed by the professional manager other than the individual investor. And the mutual funds provide diverse portfolios so that the individual risk to each investor is reduced， to some extent， the mutual funds are low risk and high reward.

Cons

Mutual funds also have fees to charge， such as operating fees and shareholder fees. And another disadvantage is the investor cannot control the stocks you are investing in， as there is a fluctuation between the shares.

Liabilities

Liabilities are something which the business owes to any outsider. And for mutual funds liabilities， they are divided into the units hold by the subscribers who are the funds shareholder. Every time the investor purchases the funds， and the latter will issue the new units in exchange for the subscription amount， so that the investor will be the owner of the new units. A mutual fund share is issued by the mutual funds company and the price is the net asset value （NAV equals to a mutual funds assets less its liabilities）.

Match assets and liabilities

The mutual funds assets include all securities held such as equities， bonds， debt instruments and derivatives. the funds balanced sheet will show the assets and liabilities， when matching the assets and liabilities， the value of the liabilities will change constantly， since the number of units issued changes and the value of units is continuously changing.

Bank deposits

Bank deposits are the placement of funds in savings accounts with a bank or other financial institutions. The account holder has the right to withdraw deposited funds depends on the account agreements.

Pros

The bank deposits are easy to understand， and there are no fees to charge， and the deposits will be the fixed interest during the term period. For bank deposits， they are little risk for the investor.

Cons

The rates may be lower than you think， and the bonus payments will not very higher than other investment products. When you choose the term deposit in the bank， and in this case， your money is locked away and if you want to withdraw the money in term deposit， you may need to pay the penalty fee.

Liabilities

The bank deposits are liabilities owned by the bank to the depositor.Match assets and liabilities

the bank uses the liabilities to buy assets， which earns its income. The liabilities including bank deposits or borrowings to finance assets.

Immediate annuities

Annuities are different from the other investment types （stocks， bonds and mutual funds） with tax treatment. The Annuity is a tax deferred， you have to pay the ordinary salary tax rate， but it depends on which tax bracket you fall under. An annuity is a contract between investor and the insurance company. You contribute funds to the annuity in exchange for a guaranteed income stream of your choosing later in life.

An immediate annuity is a contract whereby you agree to pay an insurance company a lump sum. In return， you immediately receive regular payments， which usually lasts for the rest of your life. Your payment depends on the amount you purchase the annuity， the payout option you choose and personal factors， such as your age.

Pros

The immediate annuities are popular with young investors who are looking to build up retirement savings while they are still working. And the annuity guarantees the monthly payment similar to salary or social security for the rest of your life. Select the annuity ensures you can never outlive your annuity checks， even you live to be 100. In this regard， annuities can be very profitable for those with extraordinary longevity.

Iimmediate annuities can provide the option to of joint annuities， which means that the payment continues as long as either you or your spouse live. Adding the immediate annuities will make your post retirement plan is easier. Since you will receive a steady payback that means you can choose riskier investments for the rest of your money.

Cons

For example， if one person dies before expected， he will receive a less financial benefit from annuity.

Match assets and liabilities

Annuities are retirement accumulation or distribution vehicles that pays benefits over the extended periods of time. And immediate annuities provide regular benefit payment in return for a single premium payment for retirement.

The insurance company should ensure the underlying investment performance of reserve assets can meet its future contractual benefit obligations. The corn principle of assets/liabilities matching is on coordinating the investment strategy with the design， pricing and ongoing management of insurance policies. But the company also face the challenges from complex interactions between assets and liabilities， and how they respond to the capital market uncertainty.

Conclusion

Planning now and choosing the most appropriate products to optimize your wealth for retirement. For post-retirement plan， you need to consider your personal situations to choose the most suitable choices， regardless of any products， there will be pros and cons， if you need the professional suggestions， the most optimal choice is asking for help from the professional managers who will give the recommendations for different needs of the customers.

（作者單位：澳大利亞莫那什大學）