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Bringing the goals-based approach to life

Rob & Julie

This case study is for use by advisers only

  • $750,000 to invest including superannuation
  • Own their own home
  • Conservative risk profile

Rob and Julie's goals

Rob and Julie are both aged 67 and they are retired.

Julie worked as a sales assistant and she has a passion for baking. Rob was a corporate worker and he loves his golf. They have one son who recently moved to Singapore and they’re really looking forward to visiting him a couple of times a year so that they can spend time with their granddaughter. Julie and Rob want to be able to achieve their goals, but don’t like to see the value of their investments fall too much on a monthly basis.

Their situation

They have $750,000 in superannuation and they qualify for a part age pension. After exploring Julie and Rob’s goals, their financial adviser has determined they will need $60,000 per annum to cover their basic living expenses and $10,000 a year so that they can visit their son in Singapore. Furthermore, using a traditional risk profile method, their adviser has determined their risk profile and he suggests an overall asset allocation of around 30% growth assets to 70% defensive assets.

As they qualify for a part age pension they will initially receive $12,370 per year; which means their superannuation ideally needs to be invested in solutions that can help generate a further $47,630 to cover their essential needs, and generate $10,000 available per year in their lifestyle wants account in order to meet their lifestyle goals in retirement.

A solution

In order to meet Rob and Julie’s essential needs requirements, their financial adviser recommends allocating $525,000 (or 70% of their superannuation) in the essential needs bucket and an additional $100,000 in term deposits with different maturities. To meet their travel expenses and future discretionary spending goals, their adviser recommends allocating $125,000 in their lifestyle wants bucket.

Investment solutions for the essential needs bucket are focused on providing regular, reliable income to replace Julie and Rob’s salaries as they are now retired. Investment solutions for the lifestyle wants bucket are focused on delivering steady real returns over time from which they can drawdown periodically to pay for their travel ambitions as and when they wish.

What does their portfolio look like?

In the essential needs bucket:

The core holding is the AMP Capital Income Generator. It is a multi-asset fund designed to deliver regular monthly income that aims to grow with the cost of living over time.

Here are the goals it helps Julie and Rob meet:

  • Regular, reliable income every month to help replace their salaries as they move into retirement
  • The ability to meet living expenses even when costs grow with the rate of inflation
  • Maximising their income over the length of retirement (due to the tax effective nature of the Fund)

The defensive asset allocation tilt in the essential needs portion of the portfolio is the AMP Capital Corporate Bond Fund. It predominantly invests in high quality bonds and is designed to provide regular income every month. Similar to the Income Generator, the goals it helps Julie and Rob meet are:

  • Regular, reliable income every month to help replace their salaries as they move into retirement
  • It is a lower risk investment solution as they are sensitive to fluctuations in the value of their portfolio

In the lifestyle wants bucket:

The core holding is the AMP Capital Multi-Asset Fund. It is also a multi-asset fund designed to deliver steady returns of above inflation. Here are the goals it helps Julie and Rob meet:

  • Cushioning their investments from potential market falls to help ensure their money lasts
  • Growing their wealth steadily over time so that they can take holidays around Australia
  • Peace of mind that their lifestyle goals will be met as the Fund demonstrates smoother performance

Although their adviser believes this portfolio should meet Julie and Rob’s income requirements, he checks to confirm that the percentage of growth assets in the portfolio is suitable for their risk profile. In this case the total equivalent exposure to growth assets is 35%. The adviser deems this to be adequately in line with their moderately conservative risk profile which suggests a 30% allocation to growth assets.

How long will their money last?

As can be seen from the following charts, drawing down $70,000 per year should on average last at least 20 years till they are 87 years old.

For the first 5 years their essential need income will come from a drawdown of the term deposits, the part age pension and income from Income Generator and Corporate Bond Fund. Thereafter their income will come from the Income Generator (both income and some capital), the Corporate Bond Fund and the age pension.

Important information

  • This case study is illustrative only.
  • It is provided only for the use of advisers/financial planners; it is not intended for investors. The adviser/financial planner remains responsible for any advice/services they provide to clients including making their own inquiries and ensuring that the advice/services are appropriate and in accordance with all legal requirements. Therefore, advisers/planners must not attribute any advice/service to AMP Capital or in any way suggest that AMP Capital is the author of any part of that advice/service.
  • The following assumptions apply about the information in this case study:
    • Julie and Rob spend at a reasonably constant (inflation-adjusted) pace through their retirement.
    • This analysis assumes there is no ongoing advice strategy that adjusts product mix, goal or spending. In practice their adviser should be giving ongoing advice to rebalance their portfolio in line with Julie and Rob’s changing circumstances, goals and realised portfolio outcomes.
    • The income amounts in this example have been adjusted for inflation at a rate of 2.5% per annum
    • We have assumed:
      • Corporate Bond Fund will return 4.5% per annum and Income Generator will return 6.5% per annum. We have based these return assumptions on the opinion AMP Capital investment professionals overlaid with asset class return projections over the next 5-7 years supplied by the AMP Capital Investment Strategy and Economics Team. Underpinning the asset class projections is an assumption that Australian inflation will average 2.5% per annum (the mid-point of the Reserve Bank target range) and that Australian and international developed country real Gross Domestic Product will grow annually by average of 2.7% and 2.3% respectively. The asset class return projections were then applied using each Fund’s target asset allocation.
      • Multi-Asset Fund will return 6.9% per annum. This assumes Multi Asset Fund will meet its investment objective which is to provide a total return (income and capital growth) before costs and before tax, of 5.5% pa above inflation.
      • The methodology adopted for Income Generator and Corporate Bond Fund was not adopted for Multi-Asset Fund as it does not have a target asset allocation.
      • cash will return 3.05% per annum which is the return projection of the AMP Capital Investment Strategy and Economics team.
    • All future return assumptions are net of platform class fees and before tax.
    • The figures used in this case study should not be taken as a reliable indicator of actual or future performance. They do not take into account taxation that may be payable. Actual returns may vary from the returns assumed above.

Age pension figure obtained from www.humanservices.gov.au

Important note: AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMPCFM) is the responsible entity of the AMP Capital Corporate Bond Fund and the AMP Capital Multi-Asset Fund and the issuer of units in these Funds. ipac asset management limited (ABN 22 003 257 225, AFSL 234655) (ipac) is the responsible entity of the AMP Capital Income Generator and the issuer of the units in the Fund. Investors should consider the Product Disclosure Statement (“PDS”) available from AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) (“AMP Capital”) for the AMP Capital Income Generator, AMP Capital Corporate Bond Fund and AMP Capital Multi-Asset Fund before making any decision regarding these Funds. Neither AMP Capital, AMPCFM, ipac nor any other company in the AMP Group, guarantees the repayment of capital or the performance of the product or any particular rate of return referred to in this presentation. Past performance is not a reliable indicator of future performance. While every care has been taken in the preparation of this information, no member of the AMP Group makes any representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. This information has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.

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AMP's Australian operations are bound by the current Australian privacy legislation which outlines how organisations should manage and use personal information collected and held about their customers. AMP Privacy Policy

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