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A differentiated approach to asset allocation in retirement

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Executive Summary

By Client Solutions & Research at Sanlam Investments

Taking a differentiated approach to asset allocation in retirement gives investors a better understanding of how they are situated to meet their retirement expectations. It analyses their current position and produces a view of what their asset allocation should be , in order to ensure that their investment is sufficient to service their retirement needs later on.

Investors will also receive a better indication of what their asset allocation should be over different stages in time, in order to meet their consumption demands. Moreover, this approach shows that there is a breakeven point for retirement investing, and that past the breakeven point, there is still a possibility that a retiree might fall short of their goal because of certain risks – emphasising the need for more customised, well-diversified portfolios.

The investment efficient frontiers show that, at some funding ratios, it is impossible to recover from lost opportunities, no matter how much risk is taken. This means that a retiree who started investing too late or did not take enough risk, might never reach their intended outcome. In such cases investors could consider moving towards an income providing vehicle that is guaranteed instead of a living annuity, or a combination of a life annuity and a living annuity.

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