The best of both worlds – a retirement income and a legacy

In the wake of the innovative retirement income stream (IRIS) legislation that has transformed the advice landscape, solutions like MyNorth Lifetime are growing in popularity among advisers.

But one question clients often ask is what happens when they pass away. There’s a perception out there that their kids and other beneficiaries could lose out.

So let’s look at the reality of what lifetime income streams offer your clients.

Myth busting

First up, let’s bust a couple of myths about how lifetime income accounts work.

Myth number one. Your clients will lose all their capital if they get hit by a bus.

“Those days are well and truly behind us”, says North Director, Retirement Ben Hillier. “Lifetime income streams either have a death benefit built in or an option to take one out.”

A death benefit can offer protection in the early years, providing something for beneficiaries if your client passes away prematurely.

The benefit tends to decline as the years go by and there will come a point when it runs out. This is simply a function of how IRIS solutions keep their promise to pay income for life, as well a legislative requirement under the capital access schedule. 

So this brings us to…

Myth number two. Their beneficiaries will be worse off.

It’s important to look at the whole picture, advises North Retirement Specialist Julian Place.

“We’d encourage clients to focus on what’s going to be paid to their beneficiaries from the total retirement income pool, including the account-based pension,” says Julian.

“And the account based pension can be higher than it would have been without the lifetime account.”

This is certainly the case with a MyNorth Lifetime Super account, which offers the unique ability to build up the asset test discount prior to retirement, meaning a bigger age pension, less drawdown on the ABP and a larger balance at death.

Ben says, “More tax and Centrelink efficiencies mean retirees are spending less of their own money from the ABP and so their kids will receive more.”

So, depending on how an adviser manages the strategy, protection at the start…tick. And a bigger legacy at the end…tick again. But what about if clients pass away in the middle years of retirement? 

A blunt instrument

Talking about longevity can be a tricky conversation. But people often underestimate how long they’re likely to live due to a common misconception about life expectancy.

Julian says, “Someone who’s reached 84 doesn’t have a life expectancy of zero, it’s actually a number of years.  In fact, for a couple of Age Pension age, there is a 1 in 5 chance that one person will live to 95.

Ben agrees. “Life expectancy is the worst named term in finance”, he says.

“There’s only a 10% chance that both members of a couple will pass away by age 81. And in that situation, there might be a reduction in their estate value”.

“But we know most people live longer and for couples even more so. So the vast majority of clients will have a better estate outcome with a lifetime income stream, particularly if they use advanced strategies to better opitmise their tax and Centrelink benefits.”

Of course, some people don’t have children. “About 10% of clients opt out of MyNorth Lifetime death benefits and invariably, it’s people without beneficiaries who want to maximise their income,” says Ben.

“It’s an entirely logical choice. After all, you can’t take it with you.” 

The kids will be alright

Many clients are comfortable in the knowledge that their kids will receive the family home, which is often the biggest asset they own.

“Some kids may get not only the house but also the car, boat, caravan, shares, term deposits and heirlooms” says Julian.

This leaves super to do the job it’s designed to do – provide retirement income for life for mum and dad.

So retirement income streams are solving for clients’ fear of running out and needing to rely on the age pension by providing the comfort of an income stream that is designed to never run out.

And with a MyNorth Lifetime account there’s also the age pension uplift, the annual bonus and the confidence to spend at a much higher rate. 

Choosing the right retirement tool

In the old days the best advice for many clients was simply to save as much as they can into super while they’re working and then draw down in retirement via an ABP.

But in a post-IRIS world there are plenty more tools in your adviser kitbag. Solutions like MyNorth Lifetime can give clients a higher retirement income and still offer a better outcome for beneficiaries.

“When we model strategies for a 50-year-old client, we could achieve up to double the estate value,” says Ben.

It’s not a bad outcome. 

Like to know more?

To find out more about how an award-winning innovative retirement solution like the MyNorth Lifetime suite of accounts can help lift clients’ retirement income and still leave a legacy for beneficiaries, have a watch of our short education videos.