1. Andrew Freeman says:

    I suggest do some scenarios using 2% as the rate of return, given that is a reasonable percentage if one wants capital guaranteed rates of return, at least in the short to medium term.

  2. I think the 5% return is not easily achieved? We have our money in bank term deposits and we are lucky to get 2% or 3%. We did not invest in property or shares or Govt bonds.

  3. Hi Trish,

    I have “plugged” your figures and assumptions in to the ASIC Retirement calculator and the results are substantially less than you have indicated. Have you re-tested these calculations with the current ASIC calculator?

    • Hi Robert
      Thanks for your email.
      We use slightly different assumptions (which we disclose at the end of the article) to the ASIC default assumptions, so the results will be different. We do this to ensure our calculations reflect returns after fees, and to ensure that we can track other websites that illegally copy our articles (unfortunately this happens). Great news that the article has prompted you to use the calculator.

      You do mention that you used our assumptions – the ASIC calculator automatically deducts a lump sum on retirement (which I remove), which dramatically changes the calculation – you have to manually do this, once you go into results, and keep on clicking until the ‘spending in year 1’ pops up. You also have to manually put fees to zero and even when you go on the ‘How it works’ page, this sometimes defaults as well. You also need to check the investment return which has to be manually changed to 5% and 7%, and then double-checked because it can revert to the default.
      I will check the figures again, although the fiddly aspects to the calculator (if you change the default assumptions) can make it confusing.

  4. So if I retired at age 65 with $1million @7% and drew $79k pa (indexed) until age 87 I presume the balance would be decreased to zero. Is that correct?

  5. Louis Salzman says:

    What will the proposed change to franking credits cost the government in terms of increased superannuation payouts as the result of lost franking income?

  6. Thanks for the excellent articles and information. Told me exactly what I wanted to know and alerted me to the fallacy of believing that my capital would not diminish over time.

  7. Will $950000 be enough to retire on?
    My wife is 59 and wants to retire next year at 60 and I am about to retire this month.
    We own our house and vehicles and have virtually no debt except utilities. Our electricity is covered by substantially by our solar panels, hence only a few outlays- rates,food, clothing, registration / car insurance.

  8. Hi Trish,
    I am turning 65 in August. My husband is 66 and receiving a part aged pension. If I wish not to apply for a pension at 64 1/2, do I have to advise centrelink of the amount held in my super account before August?

  9. One of your assumptions is “No money is spent in year one before commencing retirement income stream….” I didn’t know what this meant but when I went to the ASIC site I could see that you can enter an additional amount you might spend in the first year on a holiday, renovations etc. Is this what you are referring? It doesn’t seem to be “before commencing retirement income stream” but seems to be in addition.

    I also recommend people go and try the calculator for themselves at the ASIC MONEYSMART site as it is very interesting. However read the assumptions such as those around additional assets outside superannuation (taken into account to reduce pension calculations via deeming rate but not included in your annual income calculation) and where there is an age difference between partners in terms of when the pension is considered (not till both are of pension age) so you realise why the results maybe are not quite as you expect.

    • Firecalc, google it , best retirement calculator out there, 4% is the SWR , shows success or fail rates from 1871. Age pension needs to be added on top. no one knows the future returns or inflation rates but this shows what would have worked historically.

      Expenses (you need to work this out for yourself everyone is different) * 25 thats your number.

  10. Do you mean $350,000? paragraph 5

    For example, a very achievable lump sum of $35,000 can deliver a couple a retirement income of more than $31,000 a year

    • Hi Jennifer
      Thanks for your email. The figure is correct because a couple with $35,000 in super are entitled to the full Age Pension for a couple which is close to $30,000 a year.

  11. Hi Trish,

    The number of couples retiring $1 million in Australia is relatively small. Also people are tending to work longer and past 65. I will be useful to have tables similar to table 1 & 2, for couples and singles retiring with, $500,000, $600,000, $700,000, $800,000 & $900,000. and retiring past 65 say 66, 67, 68, 69 & 70. Thanks & Best Regards Jerome

  12. Just a question:
    A $1 million retirement :
    why the Annual income (indexed) when retire , for a couple is more than a single person, assume they get the same return on saving, and retire at the same age?

    For example:
    For 5 % return, age 55 and live till age 87:
    single get $46,500, while couple get $55,000.
    In both cases, they both have $1 million at retirement @55, both live till age 87 and have same return.

    • Hi Albert
      Thanks for your email. A couple are entitled to a greater part Age Pension for the same level of assets which means they need a smaller lump sum on retirement, when combined with Age Pension entitlements. In many cases the part Age Pension doesn’t kick in until a few years in retirement. Within the text, I explain when the Age Pension entitlements are available for the different scenarios.

  13. this is a much riskier strategy than it’s being made to sound. And it is more of a tax strategy than an investment strategy, thanks to imputation credits

    corporate dividends were cut 25% in the GFC aftermath and share prices fell 50% (and are still 40% down)

    and even if you believed the assumptions that dividends always grow faster than inflation and are never cut, how many people can afford to live off investment earnings alone and never touch their principal?

  14. Trish
    If I have $1 million in my SMSF invested in Australian shares with full dividend imputation, I receive about 5% in dividends and another 2% cash refund from the Tax Office as the imputation credits are fully refunded in pension phase. My SMSF thus generates $70,000 per year. (If I have Telstra in my portfolio I can generate 12% income.)

    Dividends are linked to profits by a fairly constant pay-out ratio so that dividends increase as company earning increase. If history is any guide, my dividends grow by an annualized rate of 7 or 8% per year, which is greater than inflation. In other words, if I can manage to live on $70,000 this year, I am better off next year without the need to reinvest any income. I also do not need to sell any shares.

    As my income is growing faster than inflation and my capital remains intact, my $1 million must be able to sustain me for as long as I live, and then I can pass the portfolio on to my heirs.

    With this strategy, my SMSF portfolio generates about 15% total return, comprised of 7% income and about 8% average growth. I will leave it to you to explain to your readers why your retail super fund can only generate 8% income and growth before inflation.

    There is no doubt that the market value of my portfolio will be volatile but my income depends on dividends, not prices. Dividends are far less volatile than share prices. Unlike a retail super fund where each pension payment is the sale of assets (units) at current prices, my income depends on earnings, not sales. Volatility is not a risk I need to manage and therefore I can afford to hold a less conservative portfolio than would be required if I was in a retail super fund that depends on the sale price of assets for each pension payment.

    Clearly, if I am not paying exorbitant fess to fund managers, and I am not required to hold a conservative portfolio to safeguard me against the volatility introduced by the active trading of my fund manager who was recommended by my adviser, my $1 million is sufficient to sustain me for ever, or at least until the minimum pension payments exceed the income produced by the SMSF.

    At age 85 I can sell some shares to satisfy the minimum pension requirement and repurchase them in another ownership vehicle and the dividend stream continues as before. Eventually, at age 120, the increasing pension minimums will remove all my money from the SMSF and ensure that the income from the portfolio is taxed normally.

    The tax is higher outside super, so my income then is lower. Given that the growth in income from dividends has exceeded inflation for 25 years there should still be more than adequate income and I should still not need to sacrifice capital to pay for living costs.

    The issue is, “should retirees be more concerned about volatility risk or longevity risk”.

    Financial planners and their employers, managed funds, are focused on volatility risk. That is what all traders need to do, but with increased life expectancy, retirees need to be very concerned about longevity risk – the risk that they will run out of money before they die.

    Actuaries understand life expectancy and longevity risk. They argue that dividends from Australian shares offer the best protection against longevity risk, precisely because dividends grow faster than inflation.

    My point is, that with sufficient income, I can sit out any downturn, so falling share prices have no effect on my investment strategy and anyway my income depends on company profits and dividends, not prices. As long as I do not depend on the sale of assets to fund living costs, volatility is not a risk I need to manage.

    For retirees in a retail super fund, however, they are selling assets (units) every time they take a pension payment. That means that retirees can only go on selling units in their pension fund for so long until there is none left, and the pension ceases. That is why the only way they can ensure there is enough money for increased life expectancy, or to have a better lifestyle, is to have more to begin with.

    Secondly, with the regular sale of units, price volatility is now a big problem that can only be addressed by adopting a less aggressive – more balanced – portfolio with fewer growth assets such as shares. Less growth means a lower long-term return which in turn will increase longevity risk. Managing volatility risk actually increases longevity risk.

    Investing in shares for my income inside my SMSF has a third benefit. The amount of capital I need to generate sufficient income is smaller for shares than other asset classes because the yield is so high inside my SMSF. If I can get 7% after-tax income yield from my shares inside my SMSF, I only need half the capital to produce the same income than if it is producing only 3.5% after tax and costs (eg. property). This gives me high yield from a growth asset.

    So I get to eat my cake and have it too. I get high yield and that income stream is growing faster than inflation.

    The central problem for retirees is to generate adequate income now and adequate income after 30 years of inflation. Retirees will only get to the grips with the retirement income problem if they focus on the correct risk. With adequate income, the risk for retirees need not be volatility risk. Surely, the aim of financial planning should then be to get people to the point where their capital generates enough income now and it grows at least in line with inflation. If retirees can achieve that, it does not matter how long they live! They will have managed their longevity risk.

    I will leave you to ponder why financial planners focus on volatility risk rather than longevity risk.

    My portfolio consists of all Australian shares except for a cash buffer of 2-3 years of forward pension payments to smooth out any volatility in dividends. Measured against the orthodox modern diversified portfolio designed to manage volatility risk, such a portfolio looks like heresy, but I believe (and the actuaries agree with me) that my large asset allocation to Australian shares is actually a smart approach to ensuring the money does not run out over a 30 year retirement.

    I look forward to your comments

    Jon Kalkman

    • Bill Edlinger says:

      Agree with Jon and have used this strategy for the past 2 years; but have 4 years cash reserve and not worried about market movements.

  15. How can you get a part age pension if you have assets (Super of 1million) over the assets test threshold which is currently under $1 million.? A home owning couple would have other non cash/super assets also, like contents, car etc tipping them well over.

    *** If you retire today, at the age of 65 with $1 million in super, as a couple, your savings can deliver you:

    a retirement income of $76,000(indexed) a year until the age of 87 (which includes a part Age Pension from the age of 66)
    $62,500 (indexed) a year until the age of 100 (which includes a healthy part Age Pension from the age of 66).

    • Hi Glenn
      Thanks for your comments and question. If you read the assumptions that are included the article, you will find your answer. We assume a couple have $25,000 in assets plus own home. Whatever scenario we use, we will have readers writing in that it is not accurate, or not representative so we keep the scenarios as simple as possible.
      We publish these articles as a prompt to readers to start asking these types of questions and conduct their own research, including using the calculators.
      Since the Age Pension was adjusted again this month, the income figures will be slightly higher again for those receiving a part Age Pension. Our articles cannot be relied upon as advice – they serve as a pointer for our readers to conduct their own investigations.

  16. Mahendra Pal says:

    Tahnks. Interesting articles. With the present trend of working life (75). What’s the advice.

  17. Re my previous message …

    I have re-checked my calcs with a couple of different on-line calculators and I can now see that it is possible to get an income between $50K and $55K, when you add in the Age Pension.

    Perhaps the most interesting aspect of these calculations, is how little a retirement benefit much greater than $480K really buys you in terms of an annual income. Suppose you retire with $750K – 3/4 of a million (wow!). Then your annual Age Pension drops from nearly $20K to well under $10K and a significant proportion of your retirement benefit simply gets devoted to making up this shortfall.

    It would be really interesting to see a spreadsheet, showing the tradeoffs between throwing more money into Super (to increase the retirement benefit) and hence potential income and (on the other hand) saving less in super but getting a larger Age Pension.


  18. Can you please expain to me how the million dollar super ever runs out. My thoughts are if you have a million dollars in Super and it returns 7% then you acquire $70,000 a year , this is just spending what your fund earns not the one million dollars as aprinciple sum, so why does it ever run out.

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