Optimizing Retirement Outcomes
Key points
01.
Improve inflation hedging precision
Enhanced inflation modeling frameworks allow us to systematically account for the appropriate level of inflation protection required across the lifecycle and optimize portfolio construction process accordingly.
02.
Increase fixed income diversification
The introduction of long duration Canadian bonds and short-term hedged U.S. Treasury Inflation-Protected Securities (TIPS) introduces additional diversification to portfolios and allows for more precisely management of interest rate risk throughout lifecycle.
03.
Deliver improved outcomes for plan members
The combination of our research enhancements could provide greater excess wealth at retirement at least 63% of the time.
Today’s macro environment is defined by persistent volatility, inflation uncertainty, and diverging global growth paths. These conditions amplify the key risks that retirement plan participants face—market risk, inflation risk, longevity risk, and behavioural risk—many of which individuals may not be equipped to identify or manage on their own.
Our objective is simple: to support consistent spending throughout each participant’s lifecycle. Over the last three decades we have researched ways to do so with more certainty. In recent years, we have focused on achieving better retirement outcomes through closer alignment between asset allocation and the different life stages that an individual moves through.
This evolution is guided by our Grow, Protect, Spend (GPS) framework:
- Grow – Aim to maximize growth potential for young plan members;
- Protect – Aim to minimize uncertainty for members approaching retirement; and
- Spend – Aim to maximize spending consistency in retirement.
In this new paper, we share our latest lifecycle insights to better manage risks and deliver improved retirement outcomes for participants through:
- Increasing the precision of inflation hedging across the lifecycle.
- Adding diversification to fixed income allocations.
Our simulation modelling suggests that including all these enhancements will lead to improved retirement outcomes for participants at least 63% of the time and equip portfolios with a better toolkit for navigating left-tail risks.