RETIREMENT SOLUTIONS Savings and Investment Behaviour in Australia NTAC:3NS-20
What could derail the journey to retirement? Understanding pitfalls can lead to a stronger retirement in Australia Savings Leakage Investment Pitfalls NTAC:3NS-20
Savings adequacy More than half of adults invest outside of institutional superannuation 50% Full Age Pension 25% Partial Pension 25% No Pension Benefit Source: Australian Government. Deloitte: ASX Australian Investor Study, 2017.
How does Australia compare? Are members incentivized to work longer? Replacement Rate for Average Wage Earner Percentage of Retirees that Receive an Age Pension Minimum Age for accessing superannuation benefits Australia 43% 75% 55 * Other OECD Countries 63% 25% 65 *Subject to meeting qualifying criteria OECD; Pensions at a Glance: How Does Australia Compare? 5 December 2017
Build Commitment, Mitigate Leakage Workers may spend their savings if viewed as play money 82% Of all demographics want portfolio protection from significant market losses Source: Cerulli Associates, Rethinking Risk for U.S. Millennials. Sabrina Bailey and Gaobo Pang, 2016, The $10,000 Hurdle, Northern Trust, based on consolidated data from academic and industry reports.
Influences on investment Many variables have an impact on investing for retirement Risk Appetite Investor Behaviour Human Capital $ $
Risk Appetite Varies Among Investors Millennials prefer experiencing some upside risk, while mitigating downside risk Workers 24% 38% 16% 3% 20% Retirees 12% 32% 21% 2% 32% Source: Northern Trust Asset Management, DC Survey, 2017. Northern Trust Asset Management; DC Survey, 2017. Northern Trust Asset Management surveyed 1000 participants and 300 retirees to examine attitudes in retirement investing. All respondents currently are or were previously enrolled in a 401(k) plan through their employer in the private sector. Research Partner: Greenwald & Associates
Evaluating Return-Chasing Behaviours Members say they can handle risks, but not really 15.00 Panic at Bottom, Flight to Safety 2,500 Transfer in(+)/out(-) normalized variation from average level 10.00 5.00 0.00-5.00 Stable value Growth equity fund S&P500 Index (right axis) Flight to Safety 2,400 2,300 2,200 2,100 2,000 1,900 1,800 Market Value 40% -10.00 Panic; Exit at Bottom 1,700 1,600 Missing the ten best days of performance during the last ten years significantly reduces an investor s account balance -15.00 1,500 Source: Northern Trust Retirement Solutions; For illustrative purposes only. Datastream calculations for MSCI World Index in AUD 1 Aug 2007 to 11 Dec 2017.
Participant behaviour in lifecycle portfolio Downside market volatility may lead to negative behaviour by younger participants U.S. Lifecycle Interportfolio Net Transfers Older Participants (Income, 2010, 2015, 2020) Younger Participants (2060, 2055, 2050) Standardized Net Transfers -0 + Recent evidence confirms behavioural patterns impact lifecycle portfolios 6/02/2018 3-Jan-2018 6-Jan-2018 9-Jan-2018 12-Jan-2018 15-Jan-2018 18-Jan-2018 21-Jan-2018 24-Jan-2018 27-Jan-2018 30-Jan-2018 2-Feb-2018 5-Feb-2018 Source: Northern Trust Retirement Solutions. Data set includes 15 DC plans with over $135B in plan assets.
Human Capital Impact on investment strategies Equity exposure should generally decline when workers get older Avoid aggressive investing based on age alone Source: Northern Trust Retirement Solutions; For illustrative purposes only
Sharpening the strategies Addressing varying risk appetite, robustness and cycles of factor-based solutions Source: Northern Trust Retirement Solutions; For illustrative purposes only
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