Mercer is looking to multi-asset income strategies to preserve capital and provide a stable income for retirees in a low-yield environment, says Nick White, the company’s director of portfolio construction research.

This investment universe should be tailored to capitalise on tax benefits to retirees, White says, and allocations to unlisted real assets have the advantage of offering protection against inflation.

White will speak about Mercer’s current strategy at Investment Magazine’s Fiduciary Investors Symposium at the RACV in Healesville, Victoria, on November 19-21.

“We’re generally very supportive of using private markets,” he says. “So you can get income exposure across real estate, infrastructure and, indeed, the private debt space, and some of those real assets can be very useful if you’re looking for long-term inflation protection within that income stream.”

He says it is difficult to meet the needs of all retirees with a single strategy so a combination is required to enable a fund to offer more personalised investment.

“We know spending patterns can change significantly through retirement,” White says. “In the more active phase, spending tends to be higher as people enjoy more healthy retired lives. Spending tends to fall over time, as the retiree slows into a more passive lifestyle, and then towards end of life they may find their costs start to increase again with healthcare expenses.”

This means in the first two phases retirees often need inflation protection but don’t necessarily need their income to grow, he explains. Meanwhile, they may need more income in the final phase to cover increased healthcare costs.

A good fund will look at a member’s spending patterns, their balance and how much they are relying on the government pension to determine how much to protect their income, he says. Those with higher balances might choose greater protections for the latter stages of their retirement, while those on lower balances may not need them, as a large proportion of their income will come from the age pension.

“We believe members have more confidence in their ability to spend if they know the long end is covered through some form of protection, either through longevity protection or deferred annuity,” White says.

A protected income stream is typically considered a better option to fund the final years of retirees’ lives than growth strategies, as retirees tend to be increasingly risk-averse as they get older, White says.

Good financial advice is crucial, he says, and it should be tailored to each individual’s personal circumstances.

“You’re monitoring their spend, you’re monitoring how much money they have in their account and whether the strategy they have is appropriate and also whether their spending looks appropriate to how much they have in their balance.

“It’s more than just providing a strategy, it’s more than just being dynamic, it’s having that ongoing interaction and strong communication with the retiree to help them through. And going further on that idea, the super fund should be able to provide them access to things beyond superannuation, such as connecting up with their aged care needs down the line.”

Ben Hurley is a journalist and editor with more than a decade of experience in the industry. He has written for The Australian Financial Review, Business Review Weekly, The Guardian and a range of specialised and industry publications.