Boosting confidence in retirement

Do you know how much you can ‘safely’ spend in retirement? Accurium (part of the Challenger group) can help.

Boosting confidence in retirement

Every retirement is unique. Maybe dining out isn’t your thing, but you couldn’t bear to give up your weekly exercise classes.

Figuring out how much you can spend in retirement requires planning. And knowing what you can afford to safely spend, based on the savings you have, will also help you to identify any gaps between your expectations and reality.

Accurium, an actuarial business that is part of the Challenger Group, is Australia’s largest provider of actuarial certificates to self-managed superannuation funds. Accurium calculates safe spending rates, taking into account changes in spending patterns over time, as well as the three major risks to your retirement income: inflation, market volatility and longevity.

By testing 2000 simulations, Accurium can calculate, with a degree of confidence, the level of spending your savings balance can safely support.

What is a ‘safe’ spending level?
A spending level is considered to be ‘safe’ if the household can continue spending its desired amount for at least as long as both spouses live, with the required level of confidence. You may have a different idea as to the amount you can safely spend and still have confidence that your savings will last.

The tables below, from Challenger’s A guide to a confident retirement, are provided for illustrative purposes only and show the ‘safe’ spending rates (spending income from all sources including any Age Pension entitlement) for couples and singles of different levels of wealth, retiring today aged 66. For the complete tables, download the guide.

A retirement spending planner, such as those here, will help you determine how much you may ‘need’ in order to meet your basic living costs and how much you ‘want’ to cover discretionary costs in order to maintain your desired lifestyle in retirement. Ideally, this should closely match what you can safely spend.

But what if there’s a gap between what you think you’ll be spending in retirement and what you can safely spend? If your basic living and discretionary costs are less than you can afford to spend, you may be being too conservative and not living the life that you could.

Or if your basic living and discretionary costs are more than you can afford to spend with the required level of confidence, you run the real risk of running out of savings later in life.

The retirement danger zone
Running out of money later in life is a big concern for many retirees.

In YourLifeChoices’ 2019 Retirement Matters Survey, respondents were asked if they had the amount of savings that they believed they needed for the retirement they wanted. Of the 5100 respondents, 59 per cent said no.

There are investments you can make to ensure you don’t run out of income later in retirement as there are risks that living longer, inflation and share market volatility can have on your savings and income. If you only invest in market-linked investments, such as via an account-based pension, there is a chance that you’ll end up in what Challenger has called the ‘retirement danger zone’.

As shown below, this is a period later in retirement where you may be unable to continue to cover your basic living costs due to the income from your market-linked account-based pension running out.

If you’d like to find out more about how to look forward with confidence in retirement, download Challenger’s A guide to a confident retirement.

Challenger is a preferred partner of YourLifeChoices.

If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.

DISCLAIMER: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances. Before making a decision about whether to acquire or continue to hold a financial product, you should obtain and consider the Product Disclosure Statement (PDS) for the relevant product. A copy of the relevant PDS for a Challenger product can be obtained from your financial adviser, by calling 13 35 66, or at www.challenger.com.au

RELATED ARTICLES

Key to the calculations underlying tables 1-2-3:

• Tables are intended to be general information only and have been prepared without taking into account any person’s objectives, financial situation or needs. They include calculations based on statements of opinion, forward looking statements, forecasts or predictions based on current expectations about future events and results. Actual results may be materially different from those shown.

• all capital is available to be used to support that level of spending (there is no assumed bequest);

• the statistics used to generate longevity scenarios are based on the Australian Life Tables 2010-12 with allowance for the 25-year mortality improvement rates published by the Australian Government Actuary;

• where relevant, on the death of one spouse, all assets and superannuation are assumed to transfer to the surviving spouse, who spends 70% of the couple’s spending as some expenses are no longer shared;

• the investment returns and rates of inflation used have been generated by Towers Watson using their Global Asset Model;

• asset allocations are based on the average for funds with more than four members as published by ASFA in the March quarter 2019;

• tax on non-superannuation investment returns is modelled, including the seniors and pensioners tax offset (SAPTO) rules and Medicare;

• the Age Pension is allowed for using Centrelink means testing rules applicable from 1 July 2019, i.e. we assume the person is eligible based on residency rules;

• if the minimum pension payment in any particular year, as required under the Superannuation Industry Supervision (SIS) regulations, exceeds the household’s spending, then this is added to the household’s non-superannuation assets;

• all tax and Centrelink rates, bands and thresholds used are those current as at 1 May 2019. All rates, bands and thresholds are assumed to change in line with inflation each year;

• we have allowed for the following fees and charges:

• Administrative fees of 1%

• Investment management charges of:

– 1% p.a. on all asset classes





COMMENTS

To make a comment, please register or login
Mariner
26th Jan 2020
9:19am
Spending rates for a 66-year-old female lower than the male? Come off it - hairdresser, cosmetics, supplements, shoes and general clothing for women are twice as much for a start. Have lots of older women living around me, wife is 67. Us blokes might have a few more beers but do not tinkle the pokies, none smokes any more and the ladies drink the more expensive tipples like pink gin at the moment.
KSS
27th Feb 2020
1:08pm
Perhaps the men need more to pay for the 'pink gin' given the rest of your sterotypical descriptions!
KSS
27th Feb 2020
1:13pm
Or perhaps the men can spend more because on average they will die sooner. Women tend to outlive men so the same amount of money will need to go further and last longer.
Sundays
27th Feb 2020
1:48pm
You are correct Mariner. My costs for hair, clothing etc are much higher than my husbands, it’s outrageous! Maybe the men in the article belong to fancy Golf Clubs etc
Mariner
27th Feb 2020
10:15pm
Do not mind my wife spending more - I just disagree with the article about females spending less than blokes.
Horace Cope
27th Feb 2020
11:08am
I would have thought that retirees would have a better sense of budgeting than younger people. We grew up with pay packets that held cash and no credit cards. This meant that when the hand went into the pocket or purse and found very little in there that we stopped spending until payday came around once more. Money was set aside for rent/mortgage, utilities and insurances and the rest was available to live on.
johnp
27th Feb 2020
11:16am
Nothing to see in this article, basically an ad for challenger which is a poor investment !!
KB
27th Feb 2020
1:44pm
I tend to agree that living costs are higher for women particularly with hair dressers and the like.It all depends on the type and quality of retirement you desire
KB
27th Feb 2020
1:44pm
I tend to agree that living costs are higher for women particularly with hair dressers and the like.It all depends on the type and quality of retirement you desire


Join YOURLifeChoices, it’s free

  • Receive our daily enewsletter
  • Enter competitions
  • Comment on articles