Retirement Income Strategies

Australians spend over 40 years of their working life building an asset base to retire. According to The Association of Superannuation Funds of Australia, for the majority this asset base on Day 1 of retirement is insufficient to pay for their remaining life costs should they wish to live comfortably. Specialized approaches to investing are the only way to breach this shortfall for retirees. Conceptually, growing our asset base in the accumulation phase is easy, we engage the growth investment engine, and our risk is defined as opportunity cost. In retirement, the engine of accumulation is still required. Throughout the accumulation phase the investment engine was set to asset growth. For retirees that engine must engage new gears, set for the unique combination of investment goals specific retirement needs. We spend 40+ years working to build an asset base to support us in retirement, in retirement we need that asset base to deliver 3 outcomes: – Income generation, but not at the expense of capital loss – Growth of assets, but not risk losing all our savings, – Certainty of outcomes – … and do all this for an unknown number of years.

Focusing on equities, one proven retirement income strategy lies not in the stocks themselves, but in the process of buying them. Selling put options to enter stock positions generates a premium for the potential buyer, regardless of whether the stock is bought or not. It creates:

• a downside buffer to first loss,

• more consistent income,

• reduces portfolio volatility, and

• diversifies the sources of return.

Further, as option premium increases with market volatility, an uncertain environment in most cases increases income from this source.