Products May 4, 2015

Natixis Introduces Retirement Spending Accounts

A product released by Natixis Global Asset Management addresses individual investors’ worries about the costs associated with living longer.
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The Natixis ASG Retirement Spending Accounts have the ability to invest retirees’ assets with the goal of providing an annual income to fund short- and long-term expenses. The accounts start with a conservative asset allocation, then increase to riskier assets including equities and alternatives for a period of time, and eventually decrease risk as investors shift toward plan finalization.

An investor is most susceptible to sequence-of-return risks early in retirement, explains Edward Farrington, executive vice president of retirement at Natixis, in a discussion of the research that went into the product’s design.  This is the period when the allocation of higher-risk assets is low to help limit volatility when initiating withdrawals. A major market correction at the beginning of retirement could deplete a large percentage of the retirees’ savings, he says. In pursuing potential returns and to help protect against risks, the allocation to risk assets rises during mid-retirement, then declines again late in retirement to preserve capital and prepare for transferring assets to a beneficiary.

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Seeking to generate a steady cash flow, the accounts will use an Adaptive Retirement Income Glidepath and a risk management strategy. The cash flow will be calculated at either a 4% or 5% withdrawal rate, with an annual inflation adjustment, and the account will remain liquid to provide flexibility throughout the investors’ lifetime.

Retirement continues to be the top investment priority for individual investors, Farrington comments. “Our new Retirement Spending Accounts provide a contemporary approach to the age-old retirement challenge, how to match funding to current and future expenses, that considers market volatility, longevity risk, taxes and other potential financial challenges associated with retirement,” he says.

Alpha Simplex Group will determine the portfolios’ strategic and tactical asset allocation, while trading, withdrawal strategy and tax management will be led by Managed Portfolio Advisors, both Natixis affiliates. The portfolios will include mutual funds and exchange traded funds, and the accounts are designed for investors who started retirement in or around the years 2000, 2005, 2010 or 2015. The minimum investment is $100,000 and they will be sold through registered financial advisers. The Retirement Spending Accounts will be available in mid-May. 

“Life changes dramatically for clients entering retirement, and their investment strategy should change with them. With so many variables, it makes sense to work closely with your investment and tax advisers. They can help identify the opportunities and create a plan to optimize your spendable income,” Farrington concludes.

More information on the Retirement Spending Accounts and “A New Chapter, A New Approach. Rewriting the Rules of Retirement Income,” a white paper on retirement income, are available at the Natixis website.

Data & Research May 4, 2015

Most Working Age People Plan to Partially Retire

The idea of “semi-retirement” has grown in popularity among working age people, but less clear is how to turn hope into reality when it comes to timing retirement.
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A new study from HSBC finds more than four in 10 working Americans plan to semi-retire when leaving the full-time work force—nearly double the number of current retirees who report that they left full-time work in steps (22%).

When studying working age people around the world, the number planning to semi-retire jumps to more than half (56%) of current workers. HSBC’s “The Future of Retirement: Choices for Later Life” report reveals among that group, the majority (54%) plan to stay in the same job, but work fewer hours.

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In today’s world, the process of retiring is often more of a gradual transition, with many opting for a move into semi-retirement first, explains Charlie Nunn, group head of wealth management at HSBC. He adds that respondents gave different reasons for wanting to enter into semi-retirement, with more saying they’ll do so by choice than by necessity. This directly conflicts with other research findings that show people often don’t have control over their date of retirement due to health or employability reasons—implying harmful cognitive dissonance may be impacting retirement decisionmaking in the U.S. work force.

Current semi-retirees say they entered the transition period for positive reasons, such as to keep active or keep their brain alert (34%); because they like working (29%); because they do not want to retire full time, at least immediately (26%); and to reduce stress (22%). On the other end of the spectrum, 7% say they have or had family members to support, requiring them to work past normal retirement age; while another 9% are no longer able to find full-time employment. One in 10 say they want to bridge a shortfall in retirement income, 11% are unable to afford to retire full-time, and 17% point to health reasons or physical demands.

The study further identified a reliance on an inheritance among working age people. Nearly two-thirds (66%) who have received or expect to receive an inheritance believe it will help to fund their retirement, while more than a quarter (27%) expect it will completely or largely fund it.

“Living inheritances add another dimension to the already complex financial pressures faced by retirees,” says Andrew Ireland, an executive vice president and head of premier banking for HSBC Bank USA. He adds that by relying on an inheritance, “people are putting their future finances at risk.” That inheritance may not always be forthcoming, as less than a third (32%) of working age people have received an inheritance.

With regard to spending, saving, or passing along their own wealth, most respondents (66%) say they will spend some and save some money to pass on to the next generation. Another 21% admit they will spend all their money and let the next generation create its own wealth, while 13% will save as much money as possible to pass on to the next generation. For Americans specifically, 14% more people agree it is better to spend all their money, rather than save to pass on to the next generation.

Additional findings reveal U.S. retirees are 17% less likely than the global average to financially support other people, with 43% currently supporting at least one additional person. On a global scale, 41% worry about being able to financially support their family or friends when retired, and 40% are concerned about being reliant on family or friends for financial support in retirement.

The study also reveals more than two in five people plan to move when they retire, with relocation from a town or city to a rural area being the most prevalent choice. Moving abroad is also an option for many in retirement, with the most popular destinations including the U.S. (19%), Australia (17%), Canada (16%) and New Zealand (16%).

“It’s essential that people of all ages adequately prepare for life’s later stages. Even the smallest amount saved today can contribute to the lifestyle you want in retirement and the legacy you hope to leave,” Ireland concludes. “Those who fail to plan may find that any kind of inheritance is unlikely and also that a comfortable retirement is beyond reach.”

HSBC prescribes four actions to help individuals plan for a better financial future:

  1. Be realistic about your retirement aspirations: Decide how you want to spend your retirement and be realistic about how much money you will need.
  2. Review your long-term working plans: Determine the age at which you can afford to fully retire and include expectations about semi-retirement.
  3. Consider your wider financial commitments: Review the long-term financial needs for yourself and your family and include both in your planning.
  4. Have a clear retirement plan: Analyze how you will fund your retirement, not assuming an inheritance. Be sure to seek financial advice for assistance if needed.

The “Future of Retirement: Choice for Later Life” report is the eleventh in its series and includes responses from more than 16,000 people in 15 countries and territories worldwide. Statistics were obtained through an online poll in August and September 2014. More information about the report and findings is available on HSBC’s website.

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