When people retire the most important thing on their mind is usually how to generate enough income to provide a comfortable living without a salary. However increasingly it appears that is not the only thing on their mind.

Many new retirees are also hoping they will be able to generate the necessary income without spending their capital. They are hoping that some or most of the superannuation and other savings they have built up will be available to their children after they pass on.

We know this because of the unpopularity of annuities. Annuity providers and Government retirement income policymakers have gone to great lengths to make annuities attractive. Annuities provide a fixed, known, dependable income, for life, at a competitive interest rate.   

Providers have built in features to avoid or minimise losses if the annuitant dies early. Policymakers have approved a forty per cent discount in the Centrelink Assets and Income Tests for money spent on annuities. This means retirees buying annuities qualify for significantly greater Age Pensions.

Yet still few retirees choose annuities. Why? Apparently because, if they live past their life expectancy, the capital will be gone, with nothing left for the children.

Policymakers say the superannuation system is not supposed to be an intergenerational wealth transfer tool. Retirees disagree. They say they worked hard and went without to build up their retirement savings. They don’t intend to retire and spend it all. They want their children to benefit.

What retirees do like is account based pensions. They are like super accounts run by professional managers but instead of receiving contributions, they pay out regular, reliable, income streams.

Account based pensions can invest in any non-speculative area. Retirees prefer those that own property, shares and infrastructure, in Australia and overseas, for at least part of their money. These assets provide sound rental or dividend income, plus capital growth longer term. 

The ideal pension account earns enough to pay out monthly income of four to five per cent per annum plus grow at the rate of inflation. The cost of living will be higher in the future, requiring more income. Rents and dividends usually increase over time.

Some retirees have investment properties and share portfolios that they retain in retirement for the same reasons.

The fluctuations in values that come with shares and property must be managed, so investing partly in stable, fixed interest areas makes sense. Yet it is assets that grow in value that will ensure benefits for the children later.