The Retirement Income Covenant and Retirement Portfolio Construction
Article 6 of 7 in the Retirement Portfolio Resilience Educational Series.
Retirement Portfolio Resilience Perspective
Primary Pillar: Retirement Portfolio Construction
Supporting Pillars: Sequencing-Risk Awareness • Behavioural Survivability • Resilience Across Market Environments
This article uses Australia's Retirement Income Covenant as a starting point for considering a practical portfolio construction question: what functions must a retirement portfolio perform to meet the needs of a retiree? It identifies four distinct but complementary functions — Growth, Defensive, Retirement Income and Retirement Portfolio Resilience.
The paper explains why Retirement Income and Retirement Portfolio Resilience are separate but complementary portfolio functions. Sustainable retirement income can address income and longevity needs, but does not by itself determine how the remaining portfolio will respond to significant market declines, sequencing risk or the behavioural challenge of remaining invested.
For investors, advisers and researchers, the article brings these concepts together into the practical 4–5–2 framework: four Retirement Portfolio Functions, five pillars of Retirement Portfolio Resilience and two objective Evidence Tests. The framework moves portfolio assessment from what an allocation is called or intended to do towards what it has actually demonstrated.
