Aged care and longevity risk in retirement planning are becoming key concerns for financial advisers, as demonstrated by the first Challenger Financial Standard Technical Services Forum.
Challenger head of technical services Andrew Lowe spoke first, discussing the various different approaches on the retirement planning spectrum - from "probability based" (safe withdrawal rates, variable spending, income buckets) to "safety first" (bond ladders, floor-leverage rule, managed define contribution).
Ultimately Lowe advocated an "income layering" approach, pointing to a recent Accurium report which demonstrated the approach led to a 99% success rate. He added the 1% was just a "technical margin related to means testing."
The approach involved layering the age pension, an annuity payment and an account-based pension through the entire retirement life-cycle, with the latter tapering off during the passive phase through to aged care.
Aged Care Steps co-founder Louise Biti then took the discussion to the aged care phase specifically, pointing out that it is a growing concern for the majority of advisers' clients and that advisers risk losing business if they can't provide aged care advice.
"They will think, 'If my planner doesn't know this, what else doesn't he know?'" she said.
She argued that many Australians misunderstand the true costs of aged care, noting that for the accommodation and health care services provided in a typical (heavily government-subsidised) residential care facility, the cost itself is actually small relative to the amount of money spent on the home.
"People need to start looking at it like residential property. You get what you pay for. People understand the different levels of value in residential property, but aged care is still something that a lot of people want to spend as little as possible on."
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