Bridging the GAP within financial planning
Martin Riekert
Momentum Wealth has introduced an innovative tool, the Income Illustrator, empowering financial advisers to optimise retirement income strategies for their clients. With a focus on blending certainty and flexibility for people, this innovative solution aims to reimagine retirement planning in South Africa.
In the landscape of retirement income planning, striking the right balance between certainty and flexibility is crucial. The Income Illustrator offers financial advisers a strategic ally in navigating this terrain. By leveraging this tool, advisers can effectively extend retirement income, identify the optimal balance between guaranteed income and potential growth, and visualise various income scenarios under different market conditions.
Momentum Wealth has reimagined retirement income planning by enhancing the Retirement Income Option, our living annuity. People no longer have to choose between protection and growth: They can blend the two in one unique solution to meet their income needs when they retire and throughout their retirement years.
Financial advisers and their clients can choose to allocate a portion of the client’s retirement money to a component within a Retirement Income Option, our living annuity, to provide a guaranteed income for life.
The financial adviser can compare different income scenarios with the help of our Income illustrator to guide the decision about how much should be allocated to the Guaranteed Annuity Portfolio (GAP), a life annuity, to suit each client’s unique income requirements and circumstances.
The benefits of the Income Illustrator tool include:
- Extend retirement income: Our research has shown that by combining a life annuity with a living annuity clients can extend the income they need to maintain a reasonable standard of living by up to 10 years. The Income Illustrator helps advisers demonstrate this potential to clients, highlighting the benefits of blending certainty and flexibility.
- Find the optimal balance: By simulating different scenarios, advisers can identify the perfect mix of guaranteed income from the GAP component and potential growth from market-linked investments. This ensures that a client’s retirement income needs are met while minimising risk.
- Visualise scenarios: The Income Illustrator provides a user-friendly interface for visualising different income scenarios. This allows advisers to engage with clients and demonstrate how their income will hold up under various market conditions.
Financial advisers know the importance of clear guidance when navigating retirement planning with clients. The Income Illustrator offers four key metrics that empower informed decision-making:
- The age at which the drawdown rate starts to become unsustainable. This is the age at which the drawdown rate exceeds 10%, which is regarded as a warning indicator.
- The age at which the full required income cannot be paid any longer. At this point, even if the client drew down at the maximum allowed level, they would not be able to receive the full income required.
- The percentage of the required income the client can receive at the planned age. This shows the difference between the income required at a planned age and the income that the living annuity can provide at this age.
- The projected investment value at different ages. The objective here is to assist financial planners in understanding the potential inheritance value of the living annuity.
Combining these four metrics, financial planners can elevate their expertise when advising clients on any range of scenarios so they can visualise what income they will receive at what age – given different allocations to the Guaranteed Annuity Portfolio and other inputs.
Financial advisers who use the Income Illustrator can instantly see the benefit of including it in their planning process. It helps clients feel better prepared when they can make optimal decisions about how to structure their retirement income solutions.
By leveraging the Income Illustrator, advisers can empower their clients to make confident decisions about their financial future, strengthen relationships through clear communication, and pave the way for a secure and fulfilling retirement.
