Sadly, the average retiree in Australia is struggling with a much lower super balance than the amount recommended by Australian Superannuation Fund Association. And more than 70 per cent of Australians over the age of 65 rely on the full or part age pension as their primary source of income when they retire. The reality is, superannuation for most of today’s retirees will act as a supplement only.
The suggested superannuation balance for couples wanting to live comfortably sits at $510,000 and for a single sits at $430,000 whereas in reality the average male retiree today has only $197,000 in their super accounts and female has $105,000.
So if you look like the average retiree today, you are limited to what you can achieve with the savings you have. But how much do you need, and how much will create a reasonable retirement, should you be in these entirely “average” circumstances?
The golden rule of retirement withdrawals said that if retirees withdraw 4 per cent from their savings every year (or $4 for every $100 that they have in retirement savings), adjusted for inflation, their nest egg should last 30 years. Sadly, last year, in a report issued by the Financial Services Institute of Australia, FINSIA revised this number down to 2.9 per cent per annum for a balanced portfolio to ensure that the savings last for a 30 year retirement. Any faster and they believe that people will run the risk of running out of retirement savings before they die, and nobody wants that to happen.
So when calculating a retiree’s potential income this number is always of critical concern. But there are also three other important things you need to think about when planning for your retirement drawdown levels:
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Getting off on the right foot in the early years of retirement. It’s not just the drawdown rate that can impact your financial wealth, but also the sequence of your investment returns. Portfolios that suffer negative returns in the first years of drawing down in retirement can find it difficult to last if the capital balance on which planning has been done has been damaged. A plan and investments that allow for growth and careful risk management in the early years of retirement is well worth considering to ensure you don’t run out of retirement savings. Once those years are gone, you can’t get them back.
Properly understand your risk profile. This is your general ability, willingness and need to take risk in order to reach your financial goals. For some, simply retiring in moderate circumstances may require that you take risk on higher growth investments to do so. Ensure you understand your risk profile, needs and interests in exposing your investments to higher growth and/or higher risk products and go into those investments with an awareness of how actively you will need to monitor them.
Be very aware of how much money you need to fund your lifestyle. Many people in retirement have to adjust their lifestyle to suit their available money, it is just a fact of life. But for others, through careful planning you can set your expectations up much earlier by saving more and investing in asset classes and products that can appropriately support your aspirations.
Has anyone ever suggested to you a “safe” drawdown rate for your superannuation?
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