Rule of Thumb article

The Meeting Place > Let's Talk Retirement > Rule of Thumb article

4 yrs ago

I would like to refer to today's article by John De Ravin regarding 'The rule of thumb takes the guesswork out of retirement.'

He states that "We assumed that the assets in an ABP earned an investment return (net of expenses) at a rate equal to the rate of increase in average weekly earnings plus 3.5 per cent a year, and retirees held no assets outside superannuation other than possibly the family home."

According to the Bureau of Statistics website, in May 2019, the rate of increase in average weekly earnings was 3% for the previous 12 months.

This means that an ABP has to earn 3% + 3.5%, i.e. 6.5% (net of expenses) to be able to apply the Rule of Thumb theory.

In my humble and honest opinion, I believe that this is not always achievable.

Jessicachantelle

2 comments

East of Toowoomba

4 yrs ago

I also have my doubts about that article.

I personally wouldn't be withdrawing that amount automatically, I would need to confirm balances and earnings support withdrawls at that level each year. There is a lot at stake, should you get it wrong.

Greg

4 yrs ago

Of course it's not always achievable - when you are retired or close to it it can be unnerving to place too much of your money in riskier investments. I know people on here will say the market always recovers, but that can often be many, many years which some of us don't have....maybe. And what IF the markey doesn't recover, that niggling thought is always there for some of us.

I've lost a lot in the past so I'm very conservative now, I use a figure of 2.65% as my return figure based on what I'm actually receiving (most of my money) and what I hope to receive.

Sceptic

4 yrs ago

You are absolutely correct Greg, except there is no need to worry about the market not recovering, it always will. What is most often ignored, however, is in the real world, when no longer working and living off a wage while waiting for it to recover, you are having to spend some of the capital. for example, after the GFC, the Australian market has taken 12 years to get back to where it was. That means that in 2008 you would have needed 12 years of cash reserves to avoid cashing in investments. Even if you did have that amount of cash reserves, you now would either be having to live off dividends, when they are paid, or release funds by selling at the value of the market that it was twelve years ago. In other words, you are standing still. Of course, it is unlikely that you had the twelve years of cash reserves anyway, so when the market recovers you have already sold a substantial portion of yo9ur investment. Unlike a wage earner, who had the opportunity to continue investing at the lower prices and also live off the wage, thus benefiting substantially from the recovery.

2 comments

To make a comment, please register or login

Rule of Thumb article

Preview your comment