Actuaries Institute devises a simple rule for a happy retirement

Simple rule of thumb helps retirees decide how much they can draw down.

Actuaries Institute devises a simple rule for a happy retirement

Australians actuaries have worked out a simple ‘rule of thumb’ to reduce your risk of running out of retirement savings and ensure you have a better retirement.

The actuaries ran a range of complex equations and calculations and boiled them down to a simple rule that will help single retirees who have reached Age Pension eligibility age, and who are receiving a part or full Age Pension but who choose not to seek financial advice at retirement.

YourLifeChoices members have repeatedly stated in our many surveys that their biggest concern in retirement is running out of money.

Many will err on the side of caution when it comes to drawing down an optimal amount for the most comfortable retirement they can afford.

This rule of thumb will instil higher confidence that retirees are able to draw down a little bit more of their savings than the minimum required by the government.


“Many retirees draw a bare minimum from their account-based pensions, or their savings, after they stop work,” said Actuaries Institute president Nicolette Rubinsztein.

“They can’t afford to pay for professional advice from a planner, and they live frugal lives because they fear outliving their savings. But the ‘rule of thumb’ is simple and accurate and takes into consideration a retiree’s asset base and age."

The rule of thumb throws aside the need for complex drawdown calculations and is based on dynamic programming that can be flexible enough to work for everyone, no matter their income or savings.

“Excellent techniques for computing optimal spending for individuals are available but these are complex. It has not been possible to find drawdown rules that are simple and optimal for everyone,” said Actuaries Institute chief Elayne Grace.

“But the Working Group has developed a guide that could help Australians have a better retirement. All the rules respond to Age Pension testing parameters, which makes this work very important for a large number of Australians.”

The simplest ‘rule of thumb’ guide is that a single retiree should:

  • draw down a baseline rate, as a percentage, that is the first digit of their age
  • add 2 per cent if their account balance is between $250,000 and $500,000
  • the above is subject to meeting the statutory minimum drawdown rule.

So, a single retiree aged 60 to 69, who retires with a super balance of $350,000, could draw down eight per cent of their savings: six per cent representing their decennial age, plus an extra two per cent.

“The federal government has encouraged the industry to develop better products to help ensure retirees don’t outlive their spending. But that’s still a way off. In the meantime, we’ve taken a complicated set of equations and scenarios, and worked out what is a simple guideline that works,” said John De Ravin, one of the actuaries who devised the rule.

What do you think of this rule? Would it work for you?

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8th Nov 2019
As a lot of couples our age, 72-67 have only one super I would err on the side of caution. As a solo pensioner does it tougher than a couple.
8th Nov 2019
it's a rule of thumb, not gospel, so could be helpful as a quick ballpark guide. It might need some adjustment for the 60+ not yet eligible for pension.

8th Nov 2019
Of you super earns very little 8% will deplete it very quickly but if it earns more than 8% then you only have inflation to worry about.
8th Nov 2019
I take that draw down (example given of 8%) is per year, and based on that I spend way less than I could. But I suspect if I did spend at that rate I may well end up on the OAP,..... and I don't think that would be the intention.
8th Nov 2019
Upsize, spend, spend,spend.
8th Nov 2019
The 4% rule used to be the standard if you didn't want to outlive your money. It's hard to see how withdrawing 8% pa would last, if the 4% rule is still valid.
8th Nov 2019
There is minimum withdrawal according to your age that you must withdraw so that your super is compliant.
8th Nov 2019
Yes, on $350K they are bankrupt in about 15 years. I guess the pension gets topped up on that amount but I don't think anyone wants to live solely on the pension.
9th Nov 2019
Rosret, it's more nuanced than drawing down a flat amount each year so likelihood of bankrupt and relying upon pension only is remote. The guide suggests withdrawing a % of the balance, which is in turn affected by fund return, part/full pension and amount drawn down and rate of drawdown.

A simple flatline projection using $350,000 plus pension would result in $40,000 a year from age 69 through 95 (17% chance) in today's dollars. This requires withdrawal $22498 in year 1, which is 6.4% of the super balance. Balance at age 90 calcs at $85078 and drawdown is $15732, which is 18.4%. Clearly if withdrawing from super at reduced rate, you could make it last longer with lower income.
8th Nov 2019
The 4% rule used to be the standard if you didn't want to outlive your money. It's hard to see how withdrawing 8% pa would last, if the 4% rule is still valid.
8th Nov 2019
For what it's worth, please refer to the letter (below) I wrote to the authority/ies dwindling our money and double dipping on GST. They replied they couldn't understand it? This was 7 years ago. Enjoy!

GST General Office Joseph Dingli
Technical Advice *****************
PO Box 3524 Park Orchards
Albury NSW Victoria 3114.

Dear Sir/Madam

Principles of applying GST to Electrical Energy Consumption and Generation.

I have just received my power bill from Lumo Energy and note (in my view) the GST has been inaccurately and unjustly applied. I have contacted Lumo Energy, The ACCC, The Water & Energy Ombudsman (woman), Victoria, two divisions of the ATO, including the specialist GST division, all saying it's an interesting case but none and/or no one could give a decision or answer to my concerns. The ACCC went as far as to say I was the first person in Australia to raise the issue. Really?

My main concern is that the GST on my bill has been applied two or more times. I don't mind paying the GST on my bill, but the accounting doesn't match the reality of co-power generation. I give these reasons.

1) I have already paid 10%n GST on the power I generated. (Note the rebate of $0.60 cents in lieu of $0.66 cents)
2) I an required to pay GST on the power I consumed, In fact I am required to
pay GST on GST.
3) No regard was given for the fact I did not actually buy a service, I sold one.
As GST is paid on a purchase of goods and services, I cannot see why I have to pay GST at all if I purchased no service. In fact I sold a service to Lumo Energy. Lumo Energy are paying ATO ($27.18) via their on-selling of my generated energy.
4) The ATO has received a total of $27.18 + $24.17 ($51.35) GST from this single account to which it is not entitled to all of it. It is only entitled to $27.18
5) The principle that you pay GST only on purchased goods & services was confirmed by two ATO officers.

I have attached a copy of my latest invoice from Lumo Energy, to show the effects of the way the GST was applied. To be fair to all, and keep this morass of GST and BAS statements simple, I suggest the following.

The net total amount is assessed on each invoice. GST is then payable on the NET amount
If it's a debit (positive purchase), GST is applied on the NET positive amount.
If it's a credit (negative purchase) GST is considered $0 ( zero). (Here the ATO actually gain and additional 10% GST on their normal GST - see later).

The ATO makes its money from the GST generated by private individuals and
on-sold by the suppliers to other consumers who do not generate power. Those that generate power are paying 10% GST in the rebate of credit to them by the suppliers. Unless the private generators supply more power (in monetary value) than they consume, they will also be liable for GST on the net difference.

The ATO gets its GST on the ultimate produced and sold product, but as the GST ACT stipulates this can only applied only once when there is no added value to the goods or service provided. Here is a sample of how it should work.

Assume the power bill comes to $300. This is based on a single account.

A) If no reverse power is generated (hence no credits) by the consumer, the total GST due is $30, or a total bill of $330. This would be the standard type of bill paid by all consumer without co-generation facilities. The ATO get their GST, everyone's happy.

B) If partial power is generated (assume $150's worth) by the consumer. The NET value (the difference between energy consumed and energy supplied) $150, (a positive amount) attracts GST of $15, plus the ATO gets GST from the supplied power from other customers after on-selling of power ($150's worth) to other consumers and attracts another GST of $15, so the total ATO tax take is still $30. Everyone's still happy. However after credits come into the equation, here is the tricky bit.

C) If more power is generated by the consumer than consumed (assume $330's worth) the NET difference between before and after co-generation is $30 credit, assuming $300's worth of power was consumed at the same time). The ATO gets $33 GST on the $330 due to on-selling (note; more than above). In addition, the ATO on present arrangements, wants another $30 on the power consumed. All this for a power bill of $330.

Categories A & B work as normal, as one pays GST on the positive purchase of all power or partial power. The problem occurs in example (C). Here the GST tax the ATO receives is $33 on the power generated + $30 on the power consumed, a total of $63 on a $330 bill, and who pays the lot, you guessed right ,the poor bastard (quoting Don Chipp) doing the right thing and trying to cut carbon emissions, not to mention, trying to recover a $6,700 outlay he made at the beginning. The ATO is getting 20% tax on this transaction, way beyond the limits set down in the GST Regulations.
In effect, on this single transaction which should have resulted in a credit of $30, the credit is $0.00

Might I add that the gentleman I spoke to from Lumo Energy saw my point of view quite clearly but indicated this was an agreement to overcome the BAS statement morass that occurred when the issue was first raised. Unfortunately, it seems making the co-generation consumer pay the lot was an easy out-option. The ATO must accept some responsibility for this mess, for not clarifying the matter in fairness to all parties well before this. I am unemployed and cannot afford this impost. Nor will I let it lie without satisfactory response. I am 68 years old unemployed, and have no income, not even a pension. I am living on my savings.

Surely, it must have been and is obvious, the ATO is receiving far more tax than it's entitled to from the Energy rip-off. Let's pray the carbon tax (the cost of which again will be passed on to the consumer and what will be considered where the consumer has a negative (IE removes carbon dioxide and other pollutants from the air) output. Will I be paid by the ATO a carbon Negative Tax? Will I also get a 10% rebate for GST on top of this tax?

This looming mess needs to be cleared up before it hits the deck. People like me are fed up with this type of tricky accounting which is one sided, a massive rip-off and illegal and will force the poor taxpayer to make up for the mistakes. Maybe you should hire a few engineering professionals to understand the real issues involved.

I demand, under the provisions of the current GST ACT and Regulations, any excess tax charged and received by the ATO to which it's not entitled, MUST BE RECOMPENSED. This goes way back to all previous accounts.

Incidentally, I noticed very clearly that staff at the ACCC and the Victorian Water and Energy Ombudswomen, had little comprehension of what I was talking about, and when they couldn't convince me their system of accounts agreed to with the energy suppliers was correct (which obviously is convenient but incorrect, since it was always done that way) they passed me on to the ATO because the case was too hot for them to handle.

After three hours on the phone, the ATO experts also gave up and asked me to write to the above Technical Branch. I explained to the ATO officers you either change the ACT and Regulations to account correctly for co-generated energy, or stop overcharging GST and recompense the consumer. I can smell a bad smell of rip-offs here. The ATO must be ripping off Billions in illegal GST payments, and Government shrinking from this accounting debacle

As a Public Service I would like this to be a test case and a ruling delivered by the ATO and perhaps ATO can go a step further and explain how the carbon tax will affect consumers, how it will be assessed and who pays who if no carbon is produced. Also what happens to tax if carbon is removed from the environment?

I would also suggest you instruct other Departments and Authorities who collect the GST on the ATO's behalf and explain what should be charged and how GST is to be applied.

The Lumo latest account is attached.

I await your explanation with due anticipation.

Still waiting for a response 7-1/2 years later

Joseph Vincent Dingli (BArch. MU 1968)
10th Nov 2019
JoJozep, You actually have a very good point - which I think most people would never have actually thought about.

The ATO are double dipping and they should not be allowed to do so. It is rather like when I buy a second hand book from overseas GST has to be paid on it despite the fact that taxes have already been paid in the country of purchase.

Wonder what would happen if you were totally off the grid would the ATO still demand GST?
8th Nov 2019
JoJozep, are you serious. I couldn’t understand it either...It would take 7.5 years to read
8th Nov 2019
Basically they are saying that they should get a GST input as well as the feed in tariff on their electricity bill. It used to happened but because it's not a business GST inputs are not allowed.
10th Nov 2019
Is this assuming super amount is left in the superfund (& still subject to crashes & dips & rare significant increases/volatility)? Or is it based on leaving the whole super lump sum in the bank or under the bed receiving zero or 1% pa interest?
The idea is good, but still not sure i trust it! But i don't trust it being left in super account or bank either...hhhmm seems if you have even a minimal amount of hard earned savings some a*hole is gonna want to get there hands on it (even if it's under the bed/mattress as Malcolm Fraser once said we'd need to do!)
Destined to struggle all our lives it seems if you work anyway no matter where you stash your cash (if you even manage to be able to save any for later in life)
10th Nov 2019
Have been withdrawing at 7% from my super for 3 years now ( my govt set minimum is 5% as am under 70YO ) and my super has still grown.
10th Nov 2019
Sorry I couldn't make this case simpler to understand. The government Agencies are unable to comprehend this principle of double taxation (double dipping by the ATO), so I don't blame people being concerned about it but not understanding they're being robbed. The government itself wouldn't have a clue (as long as they're not missing out, then all hell would break loose).

However, someone please stand up and realise paying high electricity/gas prices by paying additional GST tax is not on. ScoMo and Co., where are you?, you?, you??? I can hear the echo of silence.

Wake up Australia!
10th Nov 2019
Talking Power prices, here is a prime example of rip-offs.

Many, many years ago, working as project manager for the CFA, I became interested in what Departments ( either State or Federal) where up to. Remember these departments are run by "common" people, who's abilities are as good as you'll get, but not always perfect in all things.

I became friendly with the Chief Electrical Engineer of the CFA, as he also showed interest in what the CFA were being charged in electricity costs to run their 1750 stations throughout Victoria. The CFA were paying out in excess of $820,000 on electricity use per year.

Even though the CFA where progressive at the time and many stations had roof solar cells, the electricity bill didn't seem right. The majority of CFA stations were generally unmanned except in emergencies. The electricity they consumed was generally to power fridges and freezers. The bigger stations used far more power as they operated 24/7.

We looked at the way the bills were structured. We gave credit to the clever accountants from the power companies who made up the bills. We did our own analysis, and found we (the CFA) were overcharged by 20%.

A letter from the Chief Electrical Engineer of the CFA to the power companies, soon dropped CFA power bills by 20% or more.

We, the CFA, stood up and challenged a long ingrained system, and the people of Victoria gained a substantial victory. So, don't assume Agencies always do the right thing.

All you (the public) need to do is think deeply about what's happening, and fight for your rights.

Note this message has no political aspirations whatsoever, but where a political party is found to be biased towards their own ends and robbing the public, they will be taken apart to explain their complicated ends. The average Australian is as smart, if not smarter, than their elected politicians
10th Nov 2019
Hmm. Did my own spreadsheet calculations. My conclusion is that the actuaries must be assuming a substantial return on investments, and therefore risk, that most retirees would be uncomfortable with. Either that or they are assuming a reduction in spending as a retiree ages. I did my calculations based on $250K in Super at age 66 and 4.4% average return and 2% inflation. Certainly with this rule of thumb their Super would last a life time but with a diminishing standard of living. Of course I may stand corrected if I had the assumptions that the rule-of-thumb is based upon.
10th Nov 2019
I think it all depends on how long you have to live...and your current health. What do you want in life. Do you drink, smoke or have lots of holidays...statistics are based on factors.

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