Post-retirement, the key focus for investors is generating a sufficient income stream to support their lifestyle. As people are living longer and spending more years in retirement, the challenge is not only making their savings last and meeting this need today but also in generating an income stream that will grow over time and offset the effects of inflation in the future. While “official” inflation measures are low, we all to see the cost of things we need, like healthcare and power, rising at a rapid rate.
So what should investors who are planning for a long retirement think about when investing with a focus on income generation?
Typically, when thinking about portfolio construction and asset allocation, many investors have split their portfolios between income producing assets and capital growth generating assets. At first glance, it’s pretty easy to separate different types of investments between those where the primary goal is to generate income, and those where the primary goal is the generate capital growth. Examples of investments which sit in the “income bucket” include cash, term deposits, hybrids and fixed income, while the “capital growth” bucket is principally the domain of equity holdings.