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Retirees beating inflation through equities
Investing in equities can help a retiree's potential for a higher sustainable withdrawal rate by gaining more flexibility in accounting for inflation, according to a report by Milliman Financial Risk Management.
The report found that since 1930 the growth rate of the S&P 500 dividend kept up with inflation, and outpaced it by more than one per cent per year.
"Over the course of 10 years the dividend has doubled to $41.31 [per share]. Based on the level of the S&P 500 in April 2005 (1157), $41.31 per share equates to a yield of 3.5 per cent," the report said.
"A level far superior to the two per cent yield on the 10-year Treasury bond in April 2015."
The report noted the reason for the ability to keep up and outpace inflation is because businesses are able to pass along price increases to consumers.
"History bears witness to the ability (and arguably tendency of stocks' earnings, dividends, and share prices to inflate with the economic price inflation," the report said.
"For this reason we believe investors should have a significant allocation to stocks, both when approaching and during retirement."
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The future of superannuation policy remains uncertain, with further reforms potentially on the horizon as the Albanese government seeks to curb the use of superannuation as a bequest vehicle.
Superannuation funds will have two options for charging fees for the advice provided by the new class of adviser.
The proposed reforms have been described as a key step towards delivering better products and retirement experiences for members, with many noting financial advice remains the “urgent missing piece” of the puzzle.
APRA’s latest data has revealed that superannuation funds spent $1.3 billion on advice fees, with the vast majority sent to external financial advisers.
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