The benefits of a pick ‘n’ mix approach to building retirement income streams


Bertie Bassett knew a thing or two about choice and quickly cottoned on to the idea that people didn’t just want one flavour in their confectionary.

As a financial adviser, one of the toughest challenges you face is getting the right blend of flavours for each client’s retirement income. To do that you’ve got to make sure their retirement income meets their needs; lasts as long as they need it to; and gives them as much control over their savings as possible.

It’s no easy task, but the pension freedoms unscrewed the lid of the sweetie jar, giving you access to a selection box of ways to create the retirement income your clients need.  

Retirement income flexibility is important

Changing dynamics up to, into, and then through retirement mean that a client’s income needs will often alter as they get older. The good news is that people are tending to live longer, so retirement can now last 20-30 years.

Retirement no longer happens on a set date and many people phase into retirement gradually, reducing both the amount they work, and the salary they earn, over a period of time.

Health issues tend to take a heavy toll on people in their later years and illnesses like heart disease, cancer, stroke, dementia and diabetes can all affect the income that an individual needs as they get older.

A change in marital status can also have an impact on income needs and we know that both divorce rates and marriage rates are rising for those over sixty*.

Bereavement is more common in later life and 10%** of 65-year-old men won’t live to celebrate their 75th birthday. Bereavement brings issues around access to capital and can necessitate a change in focus from the client’s needs to their family’s needs.

Given the variable and unpredictable nature of life, and the way individual outgoings can change; having a fixed retirement income is, therefore, unlikely to be the best possible fit for many people, particularly if it doesn’t offer any flexibility.     

It’s not just about the liquorice sticks

If a client chooses a single product to generate a retirement income from their savings, it’s difficult for them to retain financial flexibility, to reduce the risk of their savings running out, and to create a secure income.

They might be able to do one or two of these things, but they will probably have to sacrifice at least one.

For example, an annuity creates income certainty for life. But in doing so, a client will have to accept an income that’s inflexible, will have given their capital to the annuity provider, and will have severely restricted options to pass on money to loved ones when they die.

If a client invests all of their savings in a flexi-access drawdown product, they retain flexibility and access to their capital, as well as maintaining options on bequeathing any money left over on death. It remains invested so could grow over time. But there’s no certainty over the retirement income they will be able to generate or how long their savings will last.

Bringing new flavours to market

It takes Allsorts

Instead of plumping for a single product to generate a retirement income from their savings, it’s possible for clients to create a blended or hybrid solution using more than one. This can help them achieve a more balanced income diet - allocating savings to different income strategies depending on their spending needs. For example, a client might use a guaranteed income investment to cover essential costs, then invest the rest in drawdown to add flexibility or improve growth potential.  

Using this approach, a client who is phasing into retirement might cover some of their essential expenses using a part-time salary, topping this up with a small guaranteed drawdown income as required, and investing the rest in flexi-access drawdown.

As the client retires fully their salary would end, and could be replaced over time by a higher investment in the guaranteed income product.

And should they face an unexpected change in circumstances later in life – be that a divorce, bereavement, or something else – they could change their plans or access remaining capital from both their guaranteed and non-guaranteed income pots if they needed to, though this would reduce the value of any guaranteed income or associated benefits.

By blending the options available and creating a hybrid solution, it’s possible to tailor the retirement income your clients need and to adjust it as their circumstances change. This also gives you the opportunity to work with your clients for longer, as you assess their evolving needs in later life and help them alter their retirement income streams as needed.

We know that 70%*** of investors want some form of guaranteed income in retirement, and most also want to maximise the growth potential of their savings. A blended retirement income – using different investments to meet different needs – is one way of doing this.

We’ve made it possible to design and implement these blended solutions using our Aegon Retirement Choices (ARC) platform, making it easier to provide your clients with a complete solution all in one place – built from a mix of the different income flavours they need, without the coconut creams they’d rather leave in the bottom of the box.


*Divorces in England and Wales, 2014 – Statistical Bulletin, Office of National Statistics, December 2016

**Aegon CMI Mortality Tables, 2013