What is a reasonable annual retirement spending limit? 38



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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:

  • 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?

This article is intended to provide general information only and has been prepared without taking into account any particular person’s objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decision.


Originally published here

Shaune Egan

Shaune Egan is Head of Retirement Solutions, Segment Development at the National Australia Bank, focused on developing retirement strategies and solutions for financial advisers and their clients. Shaune holds an MBA from the Melbourne Business School, a Graduate Diploma in Applied Finance and Investment, a Diploma of Financial Planning (DFP) and a Retirement Management Analyst (RMA) certification from the Retirement Income Industry Association (RIIA). He is Fellow of FINSIA and Graduate Member of the Australian Institute of Company Directors.

  1. And if the risk this adviser suggests you take fails?

    2 REPLY
    • There are investments that are secure, unless we have a GFC. Risk taking is only for those can afford to lose! Think of those MISM’s where people chased higher rates of return.

      1 REPLY
      • ‘there are investments that are secure’ ?

        if you mean cash – that is guaranteed to lose value at the rate of inflation – if that averages 3%pa, then the rule of 72 means your cash will be worth half as much in 26 years – is that the kind of security you mean ?

        bonds – tend to move opposite to shares – when markets crash, bond values rise (or something like that) – when share markets boom, bonds tend to lose value. So that’s a risk.

        if you don’t trust banks and decide to keep your money in your mattress – that works great until a thief finds it – or your well-meaning daughter decides to surprise you with a new mattress – which is followed by a panicked trip to the dump looking for your life savings that have suddenly vanished.

        Risk tends to be the inverse of returns – high risk high returns – low risk low returns – but hey if you expect to drop dead tomorrow, then sure – blow it all today ! Pity tomorrow if you got the timing wrong … grey haired beggars on the street are not a pretty sight.

  2. Try retiring without super, as too many women who have worked all their lives, do, myself included. At least I have learned how to make a small income go a long way.

    1 REPLY
    • What country are you in? Don’t you have a universal superannuation (old age pension)? New Zealand does, and I think Britain too.

  3. Ok so super is to last 30 years!! Well I’m sure I won’t be spending the same amount in even 10 years as we do now. I’m not making my super last 30 years. We may not even live another 30 years. At age 69 and 63 we’ve worked hard all our lives, never claimed Centrelink and are going to enjoy the first few years of retirement and then the government can take care of us when we run out of the super that we have. (I know, we’re selfish baby boomers and I don’t care!)

    7 REPLY
    • Lillian, you are on the right track, enjoy the first years of your retirement , we retired over 20 years ago, we are now in our 70s did most of our overseas travel while still working, the super in our working days didn’t amount to much, a lot of people I know worry themselves sick of not having enough money but don’t realise they won’t live forever, so enjoy life with what ever you got, because tomorrow may never come .

    • I’m 73 this week. I probably don’t have another 30 years. I’m not worrying about conserving the meagre super I have. My life is NOW and I’m making the most of it. While I can still afford a holiday I’ll take one. I have the Scarlett O’Hara syndrome “I’ll think about it tomorrow”.

    • It’s lovely to see people agree with me regarding this. Thank you ladies (and I notice it was all ladies that replied!) for making me feel better about this. Good to see others of the same opinion. We have no idea how long we’ll live for so I’m definitely going to adopt the ‘Scarlett O’Hara’ syndrome too!😀😀

    • Not selfish at all and I feel the same way, like most of us baby boomers. Enjoy your hard earned retirement.

  4. Stupid article. The minimum amount (percentage of balance) you draw down from super is enshrined in legislation. It depends on your age.

    2 REPLY
    • That’s what I thought John. I’m sure our financial adviser told me that when I turn 65 this year that my superannuation turns into a pension stream and the government has legislated that I MUST take a certain percentage, something like 4.5% p.a. At this age – but don’t hold me to that, that’s why I get advice because finance is not my strength.

    • Judi, Superguide.com.au has all the details. The minimum under 65 is 4%, increasing to 5% from 65 – 74, and so on. At 90 it’s 11%.

  5. I’ve already had a meeting with my super fund & we worked out how much I want to draw down each month on the balance when I retire, it will last me until I’m 92, it’s good to know just where I will stand, I find it very helpful getting advice from my super provider, even on smaller balances to know just where you stand financially.

  6. At age 76 (now) my husband has to draw down 7% and I have to draw down 5% as stated by by legislation!!!!!

  7. Had a meeting with mine and I will be drawing a percentage of mine starting this month as finding it too hard to manage on husbands basic wage. I have also taken a more careful (more cash than shares) option as I dont want a recession to eat it all.

    1 REPLY
    • Same, we’ve gone to conservative – like you we can’t replace what we’ve managed to save.

  8. You have no choice of the minimum.. That is out of your hands. There is also no maximum. I suggest you see a Financial Adviser. Plan properly. An article on Facebook will not help you..

  9. Super changes every 5 minutes. I find it really difficult to get my head around any of it. When the adviser talks I listen carefully, but I never totally get it. Every year another story!!!

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