Protect your retirement nest egg from a market crash

Protect your retirement nest egg from a market crash

 

If you’re nearing retirement, a sudden market crash could impact your life savings and therefore your retirement aspirations. And as you no longer work when you’re retired, you won’t have the opportunity to ride out market cycles and earn your capital back. So if you’d like to safeguard your future, now’s a good time to take another look at how you’re saving to ensure you’re not overly exposed to investment market risk.

Britannia’s Lifetime Income Fund protects people approaching retirement by regularly locking in their investment upside and insuring their downside. We refer to this as ‘Defer and Grow Your Income’. Simply put, you invest a lump sum with Britannia but don’t draw an income straight away. 

On the day you invest, you're given a Protected Income Base. This is equal to the value of your initial investment and is the base amount your future income payments are calculated from.

Once each year, Britannia reviews your Protected Income Base and resets it if it’s gone up. This locks in annual returns and protects your future income from market volatility. While your account balance will fluctuate with investment markets, your Protected Income Base will not decrease. And because your income when you start to take it is calculated from your Protected Income Base, you have certainty that your income can rise or remain the same but cannot fall.

 

What happens if there’s a market downturn and you’re deferring taking income?

Let's say you're 62 and have just invested $100,000 but only want to start receiving income when you retire at age 67. What happens if there's a market downturn during this time?

Your income at 67 will be at least $5,200 per annum (or $200 each fortnight) regardless of market volatility or how long you live. This is based on a minimum Protected Income Base of $100,000 and a net income rate of 5.20% per annum (the rate you get if you start taking income when you are 67).

However, it’s likely that your income will be higher from positive investment returns during your deferral period. Each year from when you invest, your Protected Income Base will be reviewed and locked in to reflect any market growth. However, if markets fall, your Protected Income Base will stay the same.

This table shows how this might look in a market that drops and then recovers.

Age

Account Balance

Protected Income Base

62

$100,000

$100,000

63

$105,000

$105,000

64

$115,000

$115,000

65

$123,000

$123,000

66

$99,000

$123,000

67

$105,000

$123,000

Each year, on the anniversary of your investment, your Protected Income Base is automatically increased to lock in any gains. If there is a market downturn when you are 66, and your account balance falls from $123,000 to $99,000, your Protected Income Base and future income will not fall. If you decide to start receiving your Insured Income at 67, it will be calculated on your highest Protected Income Base of $123,000. So, finally, at 67, you can kick your feet up and enjoy an Insured Income of $6,396 per annum for the rest of your life.

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Disclosure Statements for our Authorised Financial Advisers are available on request and free of charge. The Product Disclosure Statement for the Britannia Retirement Scheme is available from Britannia Financial Services Limited.

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