Future-proofing retirement portfolios

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Retirement portfolios need to generate a stable income, preserve capital and still offer some level of growth to allow investors to manage inflation and longevity risks, along with a reasonable standard of lifestyle. Retirees also need to be cost conscious, understanding how fees can affect their overall returns and balance. This poses more challenges than in the accumulation phase.

The current Association of Superannuation Funds Australia (ASFA) retirement standards paint a confronting picture of this investment challenge. According to the standards, a comfortable retirement for a single person means an annual income of $43,687 per year.

This income is generated by having savings at retirement of $545,000 and assumes that the individual will own their own home mortgage free, will drawdown their finances completely, take a partial pension and receive annual investment earnings of 6%.

It is this last figure that poses concerns for many.

Between globally low interest rates and a challenging market environment during the COVID-19 pandemic, financial advisers have been forced to consider alternative and more creative sources of income for their clients' portfolios, such as managed investments like exchange traded funds (ETFs).


Equities play a dual function in a retirement portfolio with the aim to offer both growth as well as some form of income.

Many financial advisers are currently using equities for dividend income in their clients' portfolios while remaining conscious of risk tolerance and retirement suitability.

There are two key approaches that may be suitable in retirement:

1. High yield paying equities

In this strategy, investors aim for high-yielding companies with solid cashflow and earnings prospects at a fair valuation. It's not uncommon for companies paying high dividends to also be priced above their true value. Financial advisers also…
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