Momentum Wealth - Retirement Reimagined

The ABCs
of retirement portfolios
Clients invested with an asset manager will have exposure to asset classes
such as cash, bonds, property and equities, both locally and abroad.
These assets create their performance through beta (B), which is the
return generated by the market, and sometimes through alpha (A), the
performance through superior stock selection.
Yet, alpha and beta come and go as no asset manager can always
outperform or guarantee to do it when clients need it most. So, if A and
B can’t always do it, what about using C?
Here, C refers to credits. More specifically, mortality credits. Mortality
credits are the benefits clients get from a life annuity because thousands
of annuitants invest with the same life insurer and their mortality risk is
pooled. This pooling is the foundation of how a life annuity is priced so that
the exact rand amount of income is quoted. It is because not all clients
will get the same value for money as they won’t all live to the same age.
Some clients live longer than expected and receive an income stream that,
when added together, could be six times or more than what they originally
invested. In these instances, the income can have an implicit return or internal
rate of return (IRR) of more than 14%. On the other end, clients may receive
less than what was invested.
Life annuities will give a different return to different people, but the
return is the highest when it is needed most, irrespective of how the future
returns from markets turn out to be.
A 65-year-old client who needs 9.6% to maintain his increasing income
needs for 15 years will need 12.6% to maintain it for 35 years.
Years of retired life 15 25 35
Return required before fees* 9.6% 11.9% 12.6%
Clients who live longer in
retirement need the high
returns the most. This is
exactly what a life annuity
offers. It offers a higher
return the longer a client
remains alive.
This rate of return will vary
on a case-to-case basis, but
long-term returns approaching
14% and even 14.5% are not out of
Martiens Barnard, Marketing
the ordinary when clients get the full
Actuary, Momentum Investments
benefit of mortality credits by living to an
advanced age.
Momentum Investments has expanded the choice of components that
can be selected in our living annuity. We now offer a Guaranteed Annuity
Portfolio (GAP) – a life annuity as a component within our living annuity.
By using Momentum Investments’ GAP, you can provide a market-linked
return as well as a return that increases with the client’s lifespan.
We have also launched our Income Illustrator. This is Momentum’s
way to help advisors understand the potential effect of adding a GAP
to the investment portfolio of new and existing living annuity clients.
The Income Illustrator provides cutting-edge technology that simulates
thousands of scenarios of market realistic returns. These simulations
give insight into what income and capital values are reasonable to expect
when adding different levels and variations of a GAP to a living annuity.
This is how Momentum Investments makes investing personal.
The return from a life annuity
15%
12%
%
6%
3%
0%
74 75 76 77 78 7 80 81 82 83 84 85 86 87 88 8 0 1 2 3 4 5 6 7 8 100
Calculations based on a R1-million life annuity for a male aged 65, which pays an income of R8 010 every month escalating at 5% every year. The
return for periods Calculations shorter based than on 74 a years R1 million is negative. life annuity Source: for a male Momentum aged 65, which Investments, pays an income November of R8 010 every 2023. month escalating at 5% every year. The
return for periods shorter than 74 years are negative.
Momentum Wealth (Pty) Source: Ltd (FSP Momentum 657) is an authorised Investments, financial date services of provider. quote Nov Momentum 2023. Investments is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider
(FSP 6406). The Retirement Income Option and the Guaranteed Annuity Portfolio are life insurance products, underwritten by Momentum Metropolitan Life Limited, a licensed life insurer under the Insurance Act and
administered by Momentum Wealth (Pty) Ltd. The information in this article is for general information purposes and not intended to be an invitation to invest, professional advice or financial services under the Financial
This rate of return will vary on a case-to-case basis, but long-term returns approaching 14% and even
14.5% is not out of the ordinary when clients get the full benefit of mortality credits by living to an
Advisory and Intermediary Services Act, 2002. Momentum Investments does not make any express or implied warranty about the accuracy of the information herein.