How to solve one of advice’s hardest problems
In a recent podcast hosted by Ensombl, industry leaders explored how innovative retirement income streams (IRIS) help tackle navigating retirement advice in a way that holds up when clients are living longer, drawing down for decades and expecting certainty with their cash flow.
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One of the key challenges for advisers right now is navigating retirement advice in a way that holds up when clients are living longer, drawing down for decades and expecting certainty with their cash flow.
In a recent podcast hosted by Ensombl, industry leaders explored how innovative retirement income streams (IRIS) help tackle this issue.
IRIS solutions can help retirees maintain regular cash flow without the fear of running out (FORO) throughout retirement, giving them greater permission to enjoy what they’ve worked for.
It helps alleviate financial concerns but also allows advisers to potentially deliver stronger outcomes to clients by offering an income stream for life with better Age Pension entitlements and layered income sources.
Liz Haile of Haile Financials uses IRIS strategies in her advice practice, calling it a “Centrelink friendly super.”
“It operates exactly like any other super fund, and then at retirement, you get the option to use this retirement income stream if it's deemed appropriate for you at that point.”
Solving client longevity starts with confidence
More than half of Australians worry they won’t have enough money for retirement1.
This is the most common anxiety faced by retirees and significantly impacts their quality of life, especially in the early years when they have more energy and opportunities to enjoy themselves.
To help give retirees confidence to spend, Haile introduces IRIS strategies in her client conversations at an earlier age.
“It's really allowed me to bring forward a lot of retirement conversations to a much younger age group,” she said.
“I'm starting to have conversations more with clients in their 40s that you can start the process of quarantining investment growth from future Centrelink assessment from as early as whenever somebody opens an account.”
By having these conversations early and using longevity solutions, clients can see a clearer view of their future income.
“Most people want to know and get under the hood a little bit,” said Haile.
“I do it visually, by drawing out a little chart for clients that demonstrates the difference between their balance over a long period of time and the trajectory we might expect [using an IRIS] and the upper deeming rate and what that will look like.”
When a client understands what their cash flow looks like, they become confident in their spending, and FORO disappears.
“I find most people go: ‘Okay that’s great. We’ll leave the rest with you Liz.’,” she said.
The lack of confidence is one of the reasons many retirees die with 90% of their starting superannuation balance intact2, said AMP Director of Retirement Ben Hillier.
“The reason we developed these strategies was not about solving longevity, it’s solving adequacy – making sure people can spend as much as possible confidently.”
Haile agreed, adding that advisers should give clients both practical solutions and peace of mind that they will have a guaranteed income stream later in life.
How does IRIS solve longevity risk?
IRIS strategies offer significant advantages over traditional annuities, said Hillier.
“Unlike traditional annuities where income does not benefit from strong investment performance… IRIS solutions provide market-linked income for life, at typically much higher rates than annuities, because you are investing through retirement, not just to retirement,” he said.
It’s not a substitute for an account-based pension; it just forms part of a broader retirement strategy.
“Having a solution where it sits alongside an account-based pension just introduces new optionality,” Hillier said.
“Typically, we're all sitting on a one-legged stool, an account-based pension. You're trying to solve longevity, risk and inflation and sequencing and everything with just investment strategy in one vehicle. Now you've got a two-legged stool, and hopefully with the age pension, which gives you three legs, you can take a more balanced view.”
As Australians live longer, one thing is clear: the future of retirement planning is changing, and advisers need diverse strategies to give clients greater confidence.
Learn more about Innovative Retirement Income Streams and how to use it to build stronger retirement strategies.
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1 AMP’s Financial Wellness research 2022.
2 Retirement Income Review.
