Magellan FuturePay
Your retirement income, paid monthly

FuturePay in retirement

Overview

Saving for retirement is hard and knowing how to invest those savings once you have retired can be even harder.

Investors in retirement are commonly faced with a challenge. How do you balance the need to re-establish a regular ‘pay cheque’, to meet day to day living expenses and pay bills, whilst also ensuring that you have enough savings left in order to maintain that regular payment long into the future, the length and demands of which are unknown?

Achieving these investment goals has only been made harder with today’s low interest rates and unpredictable investment markets.

Retirees, and those planning for retirement, are generally seeking a number of desirable outcomes:

  1. regular, predictable, income that grows with inflation, to support ongoing needs 
  2. Easy access to your savings to meet any unexpected, or large expenses
  3. And the protection and growth of those savings, ensuring they will last for the duration of our retirement, or can be passed on to our loved ones.  

The real challenge is that these goals tend to compete with one another.  Investors, particularly those in retirement, have to deal with this using a combination of the limited tools available and accepting the compromises that result, often without realising it.

To understand more about the compromises of investing in retirement, watch this short video. (3:28min)

Sequencing risk

Delivering a balance of income and growth... and why sequencing risk matters

As outlined, investing to draw a regular and predictable income from your investments often stands in conflict with seeking to achieve capital growth over time, but why is this? The answer is market volatility, which leads to ’sequencing risk’.

For investors who are busy accumulating savings, volatility can work in your favour. By frequently adding to their investments, investors can take advantage of price declines resulting from market volatility – a strategy known as ‘dollar cost averaging’.

The reverse is true for investors who want to regularly withdraw a predictable income from their investments, specifically those in retirement. When asset prices are low, you need to give up more of your portfolio to receive the same amount of income. Ultimately, you’re left with less invested and this limits your ability to compound investment returns into the future.

This is ’sequencing risk’ because the sequence of how investment returns occur relative to the need to withdraw the income now matters.

The key to delivering retirees a predictable income, while also achieving capital growth over time, is to build a strategy that materially reduces the impact of sequencing risk.  With FuturePay, Magellan has designed a solution that aims to address this challenge.

Understanding Investment Risks in Retirement 
(3:51 mins)  

Using equities in retirement

Using Equities in Retirement (Length 2:58 mins)  

Equities, including global equities, can be a powerful tool in a retirement portfolio, offering the desirable growth characteristics and diversification that many investors seek.

But how do you use equities in retirement while significantly reducing the associated risks (such as sequencing risk)?

To find out more about mitigating the risks of using equities in retirement watch this short video.

FuturePay for retirees

Introducing FuturePay - your retirement income, paid monthly

FuturePay is a new and innovative actively-managed fund, which aims to deliver retirees four desirable investment outcomes, all in a single product.  As such, FuturePay has the potential to enhance investing in retirement and be a useful tool in retirement planning.

A predictable monthly income that grows with inflation

 

Driven by returns and capital growth, with a focus on downside protection

 

Underpinned by a reserving strategy and income support

 

Together with daily access to your capital 

How does FuturePay achieve this?

FuturePay  aims to materially reduce the impact of sequencing risk for investors by:

Investing in low volatility global equities

FuturePay  uses Magellan’s established track record of investing in lower volatility high-quality global companies that aim to generate attractive risk-adjusted returns over the medium to long term, while reducing the risk of permanent capital loss.  A portfolio focused on reducing downside risk.
 

Reserving strategy

A unique feature of FuturePay  is that it incorporates a reserving strategy designed to support its predictable monthly distribution.  FuturePay  reserves a small portion of its capital in a separate Support Trust on an ongoing basis. This pool of money is then used for the benefit of investors and may provide income support in falling markets – think of it like ‘saving for a rainy day’.
 

Pooled reserves

When you invest in FuturePay  you have the potential to benefit from the capital reserves accumulated in the Support Trust by past and existing members. This is an important feature. Reserving as an individual investor can be effective, however, on average you need to set aside more of your savings as reserves than if you combine them with other investors.
 

Support from Magellan

At launch, Magellan Financial Group will provide its own capital to help kick start the Support Trust – so investors have the potential to benefit from income support from the outset.

If the assets in the Support Trust are low, investors in FuturePay may also have the potential to benefit from additional income support provided by Magellan Financial Group, known as the MFG Reserve Facility.
 

 More detailed information on how FuturePay aims to materially reduce the impact of sequencing risk, visit the FuturePay  approach. 

 To find out more about how FuturePay  works in practice.

“Investing in FuturePay provides considerable uplifts on both income and accessible capital through retirement.”

REQUEST A COPY

Quote from Rice Warner, Review of Retirement Solutions, 5 May 2021 (Section 1.5, page 5 of 118)

This Report is an independent assessment focused on quantifying the outcomes for retirement investors using Magellan FuturePay as a component of their retirement strategies. The Report outlines the modelling assumptions and assessment framework used in their analysis.

Rice Warner, researcher

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