Are we spending too much of our super in retirement?
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I am worried that we are withdrawing too much from our super. It is conservatively invested in a “stable” option. Our balance is currently $385,000. My husband and I are both 71, in good health and own our home, which we have already downsized to. We receive the full pension and withdraw $39,000 a year from our super. We are hoping to reach our 90s, so need our super to last for the next 20 years. Can you please advise us how much we can afford to withdraw so that we don’t run out of money?
At your current drawing rate, your savings will likely last around 13 more years so your concerns are well-founded. Your minimum drawing requirement is approximately $19,000 per year. Were you to reduce to this level, and stick with the minimum drawing requirement, it would be unlikely that you would outlive your savings.
Running out of super later in life is a concern many retirees share.Credit: Simon Letch
You could consider investing a portion of your savings in an annuity that would ensure your savings last 20+ years. There are various ways to configure these, but with interest rates having recovered, they are back on the table as an option.
You could also consider shifting up a risk level in your existing fund. The stable option, whilst minimising volatility in your balance, comes at the expense of low returns which negatively impact the longevity of your savings.
You mentioned that you have already downsized, but the government’s Home Equity Access Scheme would be well worth looking into.
It’s also worth keeping in mind that you are currently in the active phase of your retirement, however, you are likely to slow down as you age. It is common for us to see retirees spend more in the early phase of retirement whilst at full fitness.
I am approximately 60 years young. I’m now putting in the max I can into my super with salary sacrifice. I’m hoping to have approximately $600,000 by the time I retire in 5 to 6 years. I live in Sydney and realised years ago I can’t afford to buy here, especially being a single person. Am I doing the best thing? I want to retire to Mandurah in Western Australia and buy a home there.
Given your age and time until retirement, accumulating your savings in superannuation using salary sacrifice would appear to be a sensible approach. Depending on your income, you are likely saving at least 15 per cent tax on the sum being salary sacrificed.
Ordinarily, the drawback with super contributions is losing access to your money, however in your case, given that you have reached 60 years of age, from here on, anytime you cease work, your savings would become accessible.
There is no restriction on lump sum withdrawals from superannuation, so you could certainly draw savings out to enable your home purchase. That said, it is the intention of the superannuation system that it generate income for you in retirement and, clearly, if you take the bulk or perhaps even all of it out to purchase a home, what will you live off?
The age pension becomes available at age 67, so perhaps this is your solution, although ideally, you would top this up somehow. Perhaps you can pick up some paid work once in Mandurah.
You could potentially consider renting in Mandurah instead of buying, on the basis that your superannuation could then be retained to generate income, and, assuming you are on the pension, you would be eligible for rent assistance as part of your pension payment.
Paul Benson is a Certified Financial Planner, and host of the Financial Autonomy podcast. Send your questions to: [email protected]
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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