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When we reach the new normal what will the landscape for retirement income generation look like?

When we reach the new normal what will the landscape for retirement income generation look like?

The phrase “new normal” seems to have entered our vocabulary over the last few weeks, and whilst our day to day lives may look very different for a while yet at some point in the not too distant future we will all begin to move back to a level of normality. Due to a potential decrease in day to day spending the impact for those living on retirement income may yet to be fully seen and its worthy of further thought.

Since the pension freedoms announcement of 2014 the retirement advice market has seen a move away from annuities with many clients wanting increased flexibility in their retirement options.

As a result many of those retiring in the last 5 years are in the main heavily reliant on investment portfolios to fund their retirement.

Income requirements are obviously unique to every client but rule of thumb calculations have shown that an income of 4% per annum is potentially a sustainable expectation and with the investment markets of the last few years investors have in the main not struggled to reach and in many cases exceed this expectation.

Things may have changed though and the recent events across the globe have challenged investment portfolios not only in capital value but also in the generation of income and it is this impact which may be longer felt by those retirees.

As interest rates have remained low many investors have sought more healthy levels of returns from equity markets and it is this source that may be most eroded as some companies delay or cancel their dividend payments in a bid to bolster their own financials.

Whilst reducing retirement income levels may not be that palatable, it is a real choice, but are there other potential options to consider whilst remaining within an investor’s tolerance for risk?

Equity markets are potentially offering incredible value for investors right now and in time will recover so abandoning them completely is perhaps not the best course of action but complementing them with other opportunities could be a way forward.

A multi-asset approach has seen some investors look wider than traditional equity sources with the inclusion of bonds, property, infrastructure, private equity and other alternatives as a means to broadening the scope for income generation.

Seneca Investment Managers have focussed in the multi-asset market for almost two decades and it is this experience and expertise that have helped us navigate these broader sources to good effect.

As a smaller boutique we have been both nimble and dynamic to invest wider in quality and value driven opportunities. In the past month we have been looking intently at income generation, reviewing our wide range of portfolio assets to ensure a level of stability and sustainability for our income investors.

Although not totally immune to the market effects those who have broadened their sources of investment income are now potentially seeing the true benefits of income diversification.

The views expressed are those of Steve Hunter at the time of writing and are subject to change without notice. They are not necessarily the views of Seneca Investment Managers Limited and do not constitute investment advice. Whilst Seneca Investment Managers has used all reasonable efforts to ensure the accuracy of the information contained in this communication, we cannot guarantee the reliability, completeness or accuracy of the content. This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.  Seneca Investment Managers Limited (0151 906 2450) is authorised and regulated by the Financial Conduct Authority and is registered in England No. 4325961 with its registered office at Tenth Floor, Horton House, Exchange Flags, Liverpool, L2 3YL. FP20 131

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