Skip Ribbon Commands
Skip to main content

How do we plan for retired investors living longer in future?

21 August 2022

In a recent presentation preceding a panel discussion which he contributed to, Rafiq Taylor, Head of Implemented Consulting at Glacier Invest, outlined some of the retirement savings and income challenges that retirees face and how the Glacier Invest Real Income Solutions address the risks linked to these challenges.

Some of the challenges are as follows:

  • 51% can’t make ends meet
  • 33% retire with debt
  • 33% don’t have enough to cover medical expenses
  • 61% don’t have emergency (rainy-day) savings
  • 53% are supporting adult dependants

With this backdrop, the question that drives Glacier Invest’s responses and solutions is: “How do we manage the risks for retirees so that our clients could live with confidence throughout their retirement?”

The Glacier Invest Real Income Solutions is a living annuity solution that helps to manage some of the challenges for retirees. This tiered, risk-profiled solution, is built on the assumption of income drawdown from 2.5% to 6%, bearing in mind that retirees, on average, often have a higher drawdown than they anticipated.

Asymmetric Returns

The Glacier Invest Real Income Solutions are underpinned by an absolute return philosophy. In simple terms, an absolute return philosophy focuses on the amount that an investment earns. Also referred to as the total return, the absolute return measures the gain or loss experienced by an asset or portfolio, independent of any market benchmark or other standard.

The absolute return philosophy is implemented through asymmetric returns. At its most simplistic level, it means higher and more positive returns, and lower and fewer negative returns – achieved through active risk management. Besides reducing volatility in returns, asymmetric returns are designed to preserve capital and offer downside protection.

We aim to address two questions:

  • How can we manage market downside?
  • How do we collect market upside?

The secret is to manage as much of the market downside as possible, so that a higher upside does not become a pressing need and to create a smoother return experience and less participation in market downside. Thereby limiting the likelihood of investors switching to cash out of fear of continued negative/poor returns.

In the Glacier Invest Real Income Solutions, managing volatility in the client’s portfolio matters, as does the sequence of returns as well as the way in which those returns are delivered – monthly and annually.

How the Solutions Achieve Asymmetry

Skilful and robust manager research has led us to identify unique strategies and opportunities that exhibit powerful asymmetric characteristics. Within the Real Income Solutions, we make use of the following investment tools to ensure that clients reach their objectives:

  • Traditional long-only collective investment funds
  • Smoothing portfolios which help to artificially dampen volatility
  • Hedge funds for uncorrelated sources of returns
  • Alternatives to enhance returns to ensure sustained growth over the long term

Importantly, the various types of funds listed above are used in varying proportions across the Real Income Solutions range, depending on the client’s risk profile or their targeted drawdown percentage.

The Smooth Global Growth Fund

We have recently included a smooth bonus fund that will be 100% invested offshore, while still declaring bonuses in rand terms. This means that the risk of the overall portfolio being affected by a simultaneous global market selloff and an increase in rand strength is reduced substantially. Including the Smooth Global Growth Fund within the Solutions, therefore, allows us to mitigate capital losses to an even larger extent for investors, especially those who are particularly vulnerable to sequence risk.

How the Solutions Achieve Asymmetry

Being deliberate and creative about the methodology and tools used in portfolio construction is critical in finding the solution that greatly assists retirees in managing their financial outcomes. We believe that the Glacier Invest Real Income Solutions firmly places a retired investor in a better position to combat sequence and longevity risk through advanced portfolio construction techniques. Applying our investment skills in ways that we have not done before has led us to a solution that can provide more certainty in a world of new and challenging investment problems.

Glacier Financial Solutions (Pty) Ltd is a licensed discretionary financial services provider, trading as Glacier Invest FSP 770.

Sanlam Multi-Manager International (Pty) Ltd FSP 845 is a licensed discretionary financial services provider, acting as Juristic Representative under Glacier Financial Solutions (Pty) Ltd.

As Juristic Representative of Glacier Invest, Sanlam Multi Manager International (Pty) Ltd manages the retail investment solutions.