RETIREMENT SOLUTIONS For a better retirement Spend the income, not the capital Duggan Matthews, Investment Professional and Chief Investment Officer at Marriott Four years of disappointing equity market returns have left many retired investors feeling anxious about their financial futures. Unlike pre-retirement, the requirement to continuously withdraw from a portfolio significantly increases the risk of running out of capital (longevity risk) when market returns are poor. To assist retirees in successfully navigating this low-return environment, Marriott has recently introduced a new fund – the Essential Income Fund – into its “Solutions for Retirement” fund range. Each portfolio is managed to deliver an expected level of income and growth in income to assist retirees in maintaining their lifestyles in retirement, as outlined in the table below: Spend the income not the capital for a better retirement Four years of disappointing equity market returns have left many retired investors feeling anxious about their financial futures.Unlike pre-retirement, the requirement to continuously withdraw from a portfolio significantly increases the risk of running out of capital (longevity risk) when markets returns are poor. To assist retirees in successfully navigating this low return environmentMarriott has recently introduced a new fund –the Essential Income Fund – into its “Solutions for Retirement” fund range. Each portfolio is managed to deliver an expected level of income and growth in income to assist retirees in maintaining their lifestyles in retirement, as outlined in the table below: With an exclusive focus on retired investors, we have applied our signature Income Focused approach to managing the Essential Income Fund. The portfolio’s key differentiating factors are outlined below: With an exclusive focus on retired investors, we have applied our signature Income Focused approach to managing the Essential Income Fund. The portfolio’s key differentiating factors are outlined below: 1. Reliable, growing income When an investor requires an income from their investment, Marriott recommends drawing only the income produced by the investment, which we refer to as the matching principle. By drawing only the income produced, investors can be assured that their capital base will not be eroded (the biggest contributor to longevity risk). To achieve this the Marriott Essential Income Fund invests exclusively in companies that have been able to pay reliable and growing dividends consistently over thelong term such as Clicks, Reliable, growing income When an investor requires an income from their investment, Marriott recommends drawing only the income produced by the investment, which we refer to as the matching principle. By drawing only the income produced, investors can be assured that their capital base will not be eroded (the biggest contributor to longevity risk). To achieve this the Marriott Essential Income Fund invests exclusively in companies that have been able to pay reliable and growing dividends consistently over the long term, such as Clicks (see graph below), Growthpoint, Sanlam and Standard Bank. Growthpoint, Sanlam and Standard Bank. The dividend track records of these companies are illustrated below: Optimal long-term asset allocation The Essential Income Fund currently produces a gross yield of 6.9%, which should grow in line with inflation over time. This has been achieved through investing in an optimal 2. Optimal long-term asset allocation mix of both growth and higher-yielding asset The Essential Income Fund currently produces a gross yield of 6.9% which should grow in line classes, with inflation over as time. outlined This has been achieved in the through table investing in an below. optimal mix of both growth and higher yielding asset classes as outlined in the table below. Asset Class Asset Allocation Current Income The Fund's asset allocation will remain relatively stable over time as we believe this is the right mix for fund's investors looking asset for the highest allocation sustainable level of inflation-hedged will remain income. relatively 3. Low cost stable over time as we believe this is The annual management fee of the portfolio is 0.75% which is highly competitive. the right mix for investors looking for the highest sustainable level of inflation-hedged income. Low cost The annual management fee of the portfolio is 0.75%, which is highly competitive. Investor benefits A combination of an income focused investment approach, with an optimal long-term asset allocation and a low fee results in a number of key investor benefits, which are outlined below: Yield Long-Term Income Growth SA Equities 40 - 50% 4.0% 8 – 10 % SA Property 25 - 35% 9.0% 3 - 5% SA Long Term Bonds (15year) 20 - 30% 9.6% 0% Cash 5% 7.0% 0% Portfolio Total 100.0% 6.9% 4 - 6% Source: Marriott 1. Sustainable income – no longevity risk By investing in assets that produce reliable and growing income streams, our incomefocused approach looks to match the income requirements (rand liabilities) of retirees with the income produced by their capital (rand assets). Investors can therefore live off the income produced by their investments without eroding capital, which effectively eliminates the risk of running out of capital post-retirement. 2. More Income – higher drawdowns The Essential Income Fund combines the benefits of both traditional living annuities and guaranteed annuities by enabling an investor to draw a higher level of sustainable income with increased flexibility (access/ ability to leave a legacy). The fund’s current net income yield is approximately 6%, which is significantly higher than the generally accepted 4% “safe” withdrawal rate when relying on unpredictable capital growth to fund the annuity. 3. Exposure to quality companies The cornerstone of the Essential Income Fund is exposure to only the highest-quality South African dividend-paying companies (property and equities) and government bonds. The companies we select are responsible for generating the income for our investors into perpetuity; therefore, investing in quality businesses that are able to continually grow their earnings through all cycles is paramount. Over the long term, companies of this nature tend to produce solid income and capital returns. Summary Subdued returns and endless choice have left many retirees feeling anxious about their financial futures. Using the Essential Income Fund to “spend the income not the capital” will get your retirement plan back on track. For more information on the fund please visit Marriott’s website (www.marriott.co.za). 64 www.bluechipjournal.co.za
Marriott's Solutions for Retirement Solving the Retirement Puzzle Contact us on 0800 336 555 or visit www.marriott.co.za
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