Future Safe. The defensive alternative
Defensive assets like term deposits and cash can’t always provide the returns retirees need to sustain retirement income for a lifetime.
The record low interest rate environment is reducing the attractiveness of cash and other capital protected solutions, punishing clients who require a greater level of stability and safety.
Defensive assets like term deposits, when considering inflation, are going backwards. In fact, term deposit rates have fallen by 96% since the GFC to only 0.30%1.
In 2008, a client with $1.25m would have previously generated $100,000 of risk free income through term deposits or cash. Now that same client can only generate $3,750.
Looking at the cash dilemma another way. A retired couple today needs almost $21 million invested in cash to fund a comfortable standard of living at the current term deposit rate.3
Meanwhile interest rate risk has doubled2. The duration of investment grade bonds in Australia has crept from a pre-GFC average of 3.6 years to over 6 years.
Many think the only way is up and rates will eventually rise. However, combined with this duration creep, the protective qualities of defensive assets are being called into question.
Looking for a defensive alternative?
Future Safe is a viable alternative to low yielding defensive assets. It helps you rebalance risk and return, by providing downside protection though a ‘Floor’and the potential for higher returns through market-linked returns, up to a cap .
The ‘Floor’ you choose will be the maximum loss you can suffer in any one year4. Each Floor has an associated ‘Cap’ that is the maximum gain you can enjoy in any one year. The lower the Floor the higher the Cap.
We don’t know where markets will go from here, but with a maximum, net of fees, return of 2.15 %, Future Safe has the potential to earn seven times the current term deposit rate with a maximum downside of only -0.8% (after fees)5.
Future Safe is a protected retirement strategy and is not risk-free, nor is it a cash or term deposit. Future Safe is a completely different longer-term product, with a 7 year investment interval, generating sharemarket linked returns. It can be used as a component of an enhanced defensive portfolio in conjunction with fixed income, to form part of an overall defensive retirement strategy.
Future Safe PDS
Allianz Australia Life Insurance Limited is the issuer of each policy and has authorised the issue of this Product Disclosure Statement (PDS).
Caps & Rates
Here you will find the caps & fixed rate for Allianz Retire+ Future Safe.
Future Safe case study - Advice triggers and emotional assets.
Future Safe explainer video
Business Development Team
1. Reserve Bank of Australia: Retail deposit and investment rates; Banks’ term deposits ($10000); 1 year, as at 2 March 2021.
2. Source: Bloomberg. The index is Bloomberg AusBond Composite 0+ Yr Index. Yield is the Mid Yield to Maturity. Duration is Modified Duration. Modified Duration increased 94% or 1.94 times between July 2008 and November 2020.
3. Assumes average term deposit rate of 0.3%. Uses Association of Australian Superannuation Funds (ASFA) Retirement Standard of $62,562 in annual living costs for a retired couple who want a “comfortable lifestyle”. ASFA standard at December quarter 2020. https://moneysmart.gov.au/glossary/asfa-retirement-standard
4. Before the annual product fee and any applicable taxes
5. Future Safe seven-year investment interval, 0% floor, 50/50 investment into S&P/ASX 200 Total Return (3% Cap) and MSCI World Net in AUD (2.9% Cap) indexes as at March 2021. Net of 0.80% fee.