Six Percent is the New Four Percent

How market-linked lifetime income solutions can rewrite the retirement income rule book. An oft-cited retirement income ‘rule’ which guide retirees and their advisers globally is the four percent rule. But how relevant is this rule in today’s low-yield environments, what risks does it exacerbate or fail to mitigate, and how can alternate strategies improve the comfort and confidence of retirees world-wide? This presentation will analyse the four percent rule and discuss its shortcomings, for example how it can simultaneously leave large amounts of unspent capital on average yet fail to address idiosyncratic longevity risk. We will then explore how market-linked lifetime income solutions can improve retirement outcomes and address these unmitigated issues. We propose that with the inclusion of a market-linked lifetime income solutions, the four percent rule can be rewritten as the six percent rule, thus materially improving retirement adequacy while simultaneously addressing longevity risk. About the Authors: Ben Hillier is the General Manager of Retirement Solutions at AMP and was a principal architect of QSuper’s Lifetime Pension and the recently launched AMP lifetime income suite. Anoop Varghese is the Head of Hedging Strategy, Pricing & Modelling at AMP and has worked on developing and managing capital preservation, retirement and liability driven investment strategies at AMP.

Find the Q&A here: Q&A on 'Student Loans and Pension Drawdown - Shared Issues?'