Another point people get confused on is that it's 4% of the (inflation adjusted) *initial* value of the nest egg, not the *current* value. If you want to stay safe, you can't go increasing your draw-down in good years. That's buffer you need to be able to keep up the withdrawals in down years.
I think it's also worth mentioning that the aged pension is a "back stop", in case you deplete your savings too quickly. You won't be getting any pension at all if you are a home-owning couple with more than $1M combined in Super and other assets. This is unlike the Social Security system in the US that you will see mentioned in a lot of retirement finance discussion. That system is more like a basic, pooled, government-run superannuation scheme.
> I think it's also worth mentioning that the aged pension is a "back stop", in case you deplete your savings too quickly.
I disagree. The age pension forms a standard part of retirement planning. The intent and function of the age pension system is that most people qualify for a full age pension (the asset test cutoff is over 3x the median Super balance at age 67), and Super is a supplement on top of this to increase quality of life.
Even if you have a large Super balance such as $1 million dollars, and are initially ineligible for the age pension, any retirement planner would plan what the maximum amount you could spend each year is, and in doing so you would draw down the balance and soon become eligible for a part pension, which would be factored in.
> You won't be getting any pension at all if you are a home-owning couple with more than $1M combined in Super and other assets.
That's actually not true, the assets test cutoff for a part pension for a home-owning couple is $1.003M.
So if they had exactly $1M they would be eligible for part pension, and even if they're somewhat above $1.003M, as they spend down assets they will become eligible, and the part pension amount will increase over time.
>"You won't be getting any pension at all if you are a home-owning couple with more than $1M combined in Super and other assets."
>
>That's actually not true, the assets test cutoff for a part pension for a home-owning couple is $1.003M.
>
>So if they had exactly $1M they would be eligible for part pension, and even if they're somewhat above $1.003M, as they spend down assets they will become eligible, and the part pension amount will increase over time.
You state that the post is not true, and then describe how it actually IS true by asserting the couple would need to lower their net asset position to below the threshold prior to being eligible for any part pension.
I'm not sure why you took issue with the post above when it is absolutely correct and you affirm that it is correct in your reply.
The above post says: "You won't be getting any pension at all if you are a home-owning couple with more than $1M combined in Super and other assets"
This is literally untrue, because you can qualify for a part age pension with up to $1.003M, which is an amount greater than $1M.
Hence I added the addendum that the age pension was relevant at higher asset values also:
"even if they're somewhat above $1.003M, as they spend down assets they will become eligible, and the part pension amount will increase over time."
Even if you have several hundred thousand over $1M, if you maximise spending you'll become eligible over time, contrary to the OP claim "You won't be getting any pension at all"
So this entire reply is basically a re-affirmation that you don't get the part pension until you're below the threshold.
Which is true.
You don't get any pension at all while your asset valuation is above the threshold - that's what the original post says, and it's entirely true.
They don't assert that you will NEVER get a pension because at some point you had assets over the threshold, they simply affirm that if you are over the threshold, you don't get pension.
100% accurate.
All you add is "yeah, but what if they WEREN'T over the threshold?"
They stated: "I think it's also worth mentioning that the aged pension is a "back stop", in case you deplete your savings too quickly".
To me the above implies that it's not a standard or expected form of retirement planning, but is only relied upon as a "back stop" for those whose savings "deplete too quickly".
When in fact access to the age pension is a normal part of retirement planning, including for people whose assets deplete at a slow rate, and are hundreds of thousands of dollars above the asset test cutoff.
In your above reply, you demonstrate lack of understanding of what the original post says, or how my reply relates to that.
I didn't directly address your comment "So this entire reply is basically a re-affirmation...", because that's not what the comment chain is about, but reiterated the actual meaning.
So your quibble is for those with asset valuations between $1,000,001 and $1,002,999? That precise and very tiny slice of the demographic of those with assets "above $1M"?
Great. Kudos on your pedantry. So what you SHOULD have said in your original reply is that the net asset value is actually $1.003m instead of $1m, and the rest of your reply could be discarded as wholly irrelevant.
The post you stated as "literally untrue" is in fact LARGELY true, because we don't always calculate asset valuations to the thousands when dealing with valuations greater than a million. The post you responded to is a rounded figure, and yet is still wholly accurate to two decimal places.
> So your quibble is for those with asset valuations between $1,000,001 and $1,002,999? That precise and very tiny slice of the demographic of those with assets "above $1M"?
Don’t forget those with assets worth $1,000,00.01 to $1,000,000.99 and $1,002,999.01 to 1,002,999.99 or we’ll get another subthread.
I added the important addendum that even those with hundreds of thousands of dollars over $1M would become eligible for the age pension over time, if they're maximising spending.
The OP comment said the pension only applied as a back stop for those who depleted savings too quickly. But in fact for people far over $1M, the inclusion of the age pension is a standard part of retirement planning.
So the pension is broadly relevant for people with balances greater than $1.003M
> That's actually not true, the assets test cutoff for a part pension for a home-owning couple is $1.003M.
Assuming your spouse doesn't die anytime during that period because if they do then if [becomes $667,500](https://www.servicesaustralia.gov.au/assets-test-for-age-pension?context=22526) so that'll throw a spanner into your calculations, so someone with assets in that range may go from part-pension and then they lose their spouse and then they are cut off until they fall below that lower cut-off point.
>The age pension forms a standard part of retirement planning.
It doesn't form any part of my retirement calculations. I'm four years away from Age Pension age and I already fail both the income test and asset test individually already for no pension entitlement. Barring something catastrophic happening like a nuclear WW3 I don't expect to ever be on an Age Pension.
> that'll throw a spanner into your calculations
If your spouse dies you will double your liquid assets per person and reduce expenses, so your plan actually becomes more resilient (from a purely financial perspective).
> I already fail both the income test and asset test individually already for no pension entitlement.
If you planned to spend the maximum amount possible during retirement, get maximum value from your money, that would include receiving at least a part pension.
If you're not receiving a pension eventually, you're dying with vast amounts unspent, can't take it with you.
> you can't go increasing your draw-down in good years. That's buffer you need to be able to keep up the withdrawals in down years.
Except if it's super money then yes, you have the legislated withdrawal rate which is proportional to your now current value of the entire portfolio and increases as you get older, but usually the total portfolio growth has also exceeded the cumulative CPI.
With annual returns averaging 8%-10% this usually means that good years will put you way in front over a long period of time so that bad years don't matter so much.
Most pensioners with their own super living off that income tend to gravitate towards income paying blue chips and that usually easily covers the mandated withdrawals with the bit left over covering the entire portfolio keeping up with the CPI.
Admittedly, inflation had been high for the past couple of years but that's out of line compared to the low values we've had since the start of this century, also during the Covid years the mandated withdrawals were reduced by 50%.
>Another point people get confused on is that it's 4% of the (inflation adjusted) *initial* value of the nest egg, not the *current* value.
If people don't know this they really shouldn't be retiring. Early retirement is unusual. I'm 50 and I haven't met a single other person who is early retired my age IRL. You should get yourself across the data.
Great stuff. Thanks.
I think it's OK to assume that pension will still exist. We run the numbers with the current rules and account for the inflation.
We may become a dictatorship or the world may end. Those are things we cannot control. Best not worry about them.
Exactly. Imagine being 59 (or even 30) and rejecting super because of the risk of legislative change or working years more than you need to because you hate the thought of maybe ending up on the pension when you're 80 or 90.
Play the game using the rules that exist and vote for politicians that represent your self interest. IE don't touch my super or tinker too much with the aged pension.
It's so interesting because a long-range thinking government (caveat: we have 3-4 year terms) also wants you to trust the rules so you commit more into super
So both sides win by preferring stability of rules
But it's just hard to know what a political party in power might do, especially when some systems might not be sustainable with demographic trends, etc.
Most changes to super have been relatively minor.
Preservation introduction, how many 55/60 year olds had balance that they could retire on. Even for some 45-50 today might not have enough at 60. Only those actively invested will be affected and they invest knowing the rules.
Transfer balance cap, indexed with **inflation** is a stretch target that won't mean much for many. Same for the sacrifice limit, indexed with **average income** (~30%). Not many but the most wealthy will have the capacity to invest more than that. Of course in 40+ years the values will converge. Minimum wage workers will have balance that exceed 3m. The TBC might be 4m, sacrifice limit could be 120k and without further changes balances will be bigger (wage growth) and the limits relatively smaller (cpi). Especially if they don't adjust the 30% $3m tax rate. Of course we all know the government likes to adjust income tax as require so maybe that'll be increased as more people exceed the marginal limit.
Just like franking credits, cgt discount, land tax etc for any other investors. Rules will probably change but most will be grandfathered or be very gradual.
I tend to agree. Most the reforms required are on the super side (mainly to prevent this being upper-class tax welfare, as you point out with all these out-of-reach transfer balance caps etc.)
There's also a longer term problem around solving the sustainability of pension problem, which super is definitely an important part of, and I think that's where some clearer stability of rules / clear stated plan and roadmaps would create confidence in the super system + take pressure off the pension system
Considering wages grows faster than cpi I see a point in the future that the annual sacrifice limit exceeds the balance transfer limit. Between 1993 & 2023 cpi increase by 2.7% and minimum wage by 4.1%.
All the changes have been structural and will eventually result in very little real benefit without some relaxation of the rules. Sacrifice 30% of you wage in 1 year and that's the limit of your untaxed super.
27500 \* 1.0418^(300) =5,951,666,982 (sacrifice limit)
1.7m \* 1.027^(300) =5,030,000,000 (transfer balance limit)
It's so dumb. I've seen people arguing this and I just think you freaken idiot. Get across the data. Understand it. Anyone not having the aged pension as a back-up is a fool.
\*\*\* I should add one little amendment. If you are a big spender the aged pension won't get the job done.
Years more of work just to be self funded at 95. Stretching for a 4% target that night not be achievable.
No one is a big spending in their 80s and 90s. In anycase you can get the pension (plus rates discounts etc) and super for a pretty healthy quality of life.
It's insane. I've been focused on FI for years as well and so many times I hear people being so conservative which means they are consigning themselves to years extra at work.
I went to the gym today and wrestled heaps. I'm 50. I'm about to go and have a lie down. Not going to work is awesome.
But demographics and maths can imply some things about the sustainability of the pension system
I think super is intended to remove pressure on pension/allow a path to wean it away
But it'll be interesting to see what happens politically. Either way the nation pays for it somehow
That said I'm in favour of running numbers for various scenarios and being comfortable with either. I assume pension and it's freed me from grinding for a higher number. But if it goes I can live with less, and I can also earn more if I need to.
Pension in oz as a proportion of GDP is one of the lowest in the OECD. Even if the amount of Australians claiming the pension doubled overnight it would be less than most European countries. Paying for old people’s health care and aged care is the bigger problem
> I think it's OK to assume that pension will still exist.
That’s your assessment of sovereign risk, but not everyone is going to have the same risk appetite. Some people will prefer to be more conservative and won’t include qualifying for an aged pension in their plans.
Agreed. They'll also be working a lot longer since they have a much lower appetite for risk while I'll be surfing and doing jiu-jitsu and reading books and playing tennis and living large.
It's cool but I think it's stupid.
I'm not sure if it's worth calling out that the study (which I need to re-read) was looking at a 30 yr time frame. So if you retire at 40, your outside-super funds need to last you 20 years, therefore a rate >4% (or >4.7%) could apply? Once you're 60, the 30-yr safe withdrawal rate applied to your in-super sounds about right for a typical life expectancy.
Curious on any thoughts from those more knowledgeable than me.
Definitely agree that your safe withdraw rate for a 10 year period of 20 year period will be drastically different.
Using something like [https://ficalc.app/](https://ficalc.app/) can be useful in estimating this.
$60k/year for 10 years succeeds 90% of the time with a portfolio of $640k, that's around 9.3% withdraw rate.
$60k/year for 20 years succeeds 90% of the time with a portfolio of $1.1m, that's around a 5.5% withdraw rate.
Super has a minimum draw down which is greater than 4% very quickly
Up to 64 4%
65 to 74 5%
75 to 79 6%
80 to 84 7%
85 to 89 9%
90 to 94 11%
95 and over 14%
Ah good point. But I think those percentages are of the remaining balance (which might be decreasing if you're withdrawing) whereas the 4% is meant to be of the initial balance (inflation adjusted).
Even better point! And yikes formatting. Also of course you can reinvest it regardless of the draw down if you’d like into a taxable account. But at that age I’d want to be blowing it all on business class flights before it’s too late.
Not if the average return is 8%-10% p.a. because that would be a toss of the coin for people in the 85-89 bracket at 9% and only more of a certainty for people in the 90+ bracket with their 11% withdrawal rate.
And that's just a mandated withdrawal from a tax advantaged government super scheme. There's no requirement to spend all of that money withdrawn at the casino, in most cases people do use it and probably what's left over they just put into their bank account or invest it under their own name with their other financial assets.
You are spot on. I have my spreadsheet with a 95% success rate to get to 70. Pretty soon that gives me a WR of 6% and I'm not going above that on my spreadsheet. It's insane how much more money we can spend as we get older.
Just to give some context. Right now we can spend with a 95% success to get to 70 54k but only 47 for the same success rate to get to Super. We are spending about 50k.
In 5 years time that goes up to closer to 60k and I have my portfolio going down over time. So far it's gone up each year of retirement. That won't last though.
The only point of difference I'd add is who cares once you get to 60. Your money depending on your spending level only has to last until 67. My main problem is just getting to Super. Your money doesn't have to last 30 years at that point unless you are big spender.
Yes, but your expenses may go through the roof later on. I read a comment where someone was talking about the impact of future climate change and they stated "If you think food prices have gone up a lot due to the cost of living crisis then you've seen nothing yet." so if that is the case then extrapolating future expenses by simply indexing them for expected future increases in CPI might be a bit foolhardy.
This is silly. You are basically stating that the future is going to be significantly worse than the past. If that is the case the whole idea of early retirement is over. It's work forever.
The trinity study is based upon a 95% success with a set spending amount indexed to inflation. Your argument is stating inflation going forward is going to be considerably more than at any other time in the future.
You could be right but you are significantly more likely to be wrong.
Only if you think climate change doesn't exist, we already have severe bush fires and who ever heard of a bush fire happening again at the same place a bush fire went through the year before because that would be the last place I would expect it to happen again so soon.
We also have droughts, floods and even heavy rain just before harvest destroying things like cherries and apricots which swell up, split and then rot.
We have had a taste of this during the [2007–2008 world food price crisis](https://en.wikipedia.org/wiki/2007%E2%80%932008_world_food_price_crisis) so these types of events are expected to become more frequent and severe.
Lets see what happens with the hurricane season in the USA in about six months time with the current elevated sea temperatures as they are at the moment.
I fear that I "could be wrong but I am significantly more likely to be right." and if that's the case I'll still be paying $65 per k.g. for blue eye fish and eye fillet steak for some time to come yet but I'm not sure what these people described here are going to do ["Hundreds of Australians say they skip meals, visit food banks and 'dumpster dive' as the cost of living crisis continues"](https://www.abc.net.au/news/2024-03-05/food-insecurity-cost-of-living/103521508).
Since nobody has a working crystal ball and can't peer into the future then I guess we'll have to wait and see!
>Only if you think climate change doesn't exist
I believe that climate change is an existential threat to human existence.
In stating that this has nothing at all to do with the Trinity study. The trinity study states that in the history since we have recorded stock and bond prices there is a 95% chance of your money lasting 30 years on a 4% WR.
What it basically states is that the best information that we have and having undergone depressions, recessions, wars, hyper-inflation, etc that the 4% rule survives.
You are stating that the future from a financial markets perspective will be considerably worse than the past. Not just a little worse. You are stating it will be in that 5% of cases that fail or worse than that.
That is simply an irrational perspective to put forward.
Not sure why that's the case, super funds return around 8%-10% p.a. per year and even the ASX200 annual dividend yield is about 4.5% and grossing that up for dividend imputation will give you 6.4%. So you could pull all of that out and leave the rest for capital growth to match the CPI and by CPI I mean the low rates we've had since the turn of the century and disregarding the past couple of years high aberration.
I have a similar spreadsheet to that but has the option to not match inflation with drawdown. As you age you spend less so more fun to have a higher starting point and gradually lower real drawdown. The other thing to add to your sheet is to allow an amount for cars and home contents etc that are included in the assets test. If you add 100k for those your couple will run out of money much sooner.
> As you age you spend less
Generally true for discretionary spending for things like travel and cruises but increases greatly towards the end with non-discretionary things like health expenses and aged care.
I didn't think the Age Pension was worth much, but just so I'm clear... in the above table, in year 7, the couple takes $59,114 from their super, and the government gives them $20,885. Is that right?
That's correct. Assuming that nest egg is the assessed value of your assets for the age pension (you will need to factor some extra things like home contents, cars, etc).
Using the example of year 7, the couple has assets of $734k, so they would receive an age pension of $805.90 fortnight.
In all the examples i've ever seen, for someone living off equity investments it will be the asset test that gives the harsher result. I'm guessing this is why discussions then focus on the asset test.
The reason for this is that is [For every $1000 in assets above the applicable limit, your rate of pension will reduce by: $3 per fortnight, if you’re single $1.50 per fortnight for each member of a couple.](https://www.servicesaustralia.gov.au/assets-test-for-disability-support-pension?context=22276) the example I quoted is for DSP but I think its the same for Age Pension but not stated on the [Age Pension assets page](https://www.servicesaustralia.gov.au/assets-test-for-age-pension?context=22526) for some reason.
If you think about it the $3 p.f. reduction is a total reduction of 3x26= $78 p.a. for that extra $1000.00 in assets. To get that sort of reduction under the income test [Amount your pension will reduce by, 50 cents for each dollar over $204 p.f.](https://www.servicesaustralia.gov.au/income-test-for-age-pension?context=22526) you would need to earn a rate of 15.6% p.a. on that extra $1000 being 50% of $156 = $78 p.a which is not a realistic rate of return for average investments.
So you can clearly see that once the assets test starts cutting in it's pretty savage.
Kindly note that a persons pension rate is worked out by applying the income test and working out a rate payable and then doing the same thing under the assets test and also working out a rate payable. The amount the pensioner then receives is the lower of the two tests.
It's entirely possible that someone may be over the threshold with the assets test at the point where it starts reducing and be entirely unaffected by it because for example their gov't. superannuation pension reduces them even more under the income test (and vice versa).
The 4% rule also didn't account for earning any money after retirement or having a flex spending rate (normally withdraw 100k/yr, during markets downturns only withdraw 80k, change the annual trip to Europe with a trip to South East Asia or the teip to North America with a visit to South America, etc.).
If you're in a couple, if both of you did just 1 day a week at a low stress job (something you'd enjoy - garden centre, babysitting, bunnings, guided tours, etc.) And earned 10k each a year you'd only need 80k from your portfolio, if you calculate the 100k/yr x 4% = 2.5m vs 80k/yr x 4% = $2m. So you'd have 25% extra in your investment portfolio.
I'm not saying RE and get a part time job just that the chances of you never earning again are very very low, achieving FIRE is mostly a high income privilege, & the thought you'd not do the odd job/bit of consulting here and there or earn something from a hobby afterwards just doesn't seem to make sense to me.
There are many possible methods - I feel like the idea that I adjust upwards with inflation even though say the market is down 50% is just stupidity - no thinking human being would do that.
The main planning concern is what happens when the market declines in a decent sized correction, which is something all retirees are likely to experience.
This is one of the reasons that 60/40 or whatever is useful plus a cash account. If the market tanks and is now only 30/40 then the rebalance is critical because you would then sell bonds and buy equities on order to return back to 60/40. That rebalancing process is critical to buying low and selling high - ie the opposite would occur if equities are strong, leading to selling equities and buying bonds at rebalance.
You can further modify that by how you treat your cash, which might be 2 years allowance - in a very good equity year you would top up your cash with equity sales, and in a bad equity year you might sit and use up the second years allowance.
bucket strategy by Rob Berger https://youtu.be/gVYThVn5gQA?si=agcicQQm1QcBMGV8
I’m using 5% including tax flat, no cpi adjustment - I figure returns will provide a good enough growth over time to allow for cpi with balancing as per Rob Berger above
If you can’t follow my description, watching the vid by Rob will make it far clearer than I can
[Ben Felix has a cool video](https://www.youtube.com/watch?v=1FwgCRIS0Wg) where he calculates the "real" rule to be more like 2.7% for someone living ONLY off their portfolio for a very long timeframe (no aged pension, no additional sources of income). Maybe limited applicability to an Australian audience but interesting to think about.
Couple more interesting points to think about
* A static withdrawal is always going to be inefficient, people wanting to get the most out of their wealth should really consider [variable spending rules](https://retirementresearcher.com/making-sense-out-of-variable-spending-strategies-for-retirees-2/) depending on how the market is doing that year
* Something that makes the numbers look a lot more favourable is [the retirement spending smile](https://retirementresearcher.com/retirement-spending-smile/). As you get older you become a bit more sedentary, so many people can be comfortable withdrawing the same nominal amount each year (or adjust by an amount less than inflation). Then your costs go up again due to health complications, aged care etc. Of course if you're RE then this doesn't apply to you for a while.
The 4% rule in Australia is indeed a joke.
If you've saved 25 times your annual expenses outside of super, and you're retiring at 40, guess what? Superannuation still exists. The age pension still exists. If you're retiring at 40, you only need to cover 20 years of expenses before you can access superannuation. So you probably need less than 20 years of expenses saved, at 40 a 5% withdrawal rate would be more than safe, probably even 5.5/6%(assuming you have enough in super + pension). If you're retiring at 50, you can use the 10+% rule.
And then even post age 67, you don't need 4%, because almost everyone will receive a pension of up to $28'500 per year. So to have $40k per year post 67, you don't need $1 million in Super, you only need $250k (Age Pension + 5% from Super yearly).
Retiring early in Australia could be done very cheaply (aside from the cost of housing).
I'm sorry but I've heard heaps of people state to ignore Super and heaps to ignore the pension. There are some situations where this may be valid but they are rare.
I like your attitude. I retired at 47 and we didn't earn great money. At best I earned 150k and my wife 50k. That was at best.
We did buy our house at a lower cost since it was 15 years ago and we did get some help from my in-laws.
A couple of points:-
1. The trinity study is a bit old and a bit too focused on a specific portfolio allocation. You can amend the situation a bit and I think argue for a higher withdrawal rate.
2. I am retired and I retired on about a 5% WR. I think people think this is insane however over time I'm budgeting for spending close to a 6% WR. A 6% WR gives you a 50% success rate over 30 years so to me anything above a 6% WR is in some ways a bit silly. I should add I'm 50 and my conservative 6% WR is really conservative since we have the pension.
--> I really get the impression you are arguing for higher WR's and I agree and I'm doing that now and it's working out great. The only caveat I'd add is age. If I was retiring at 30 I might prefer to get to a 3% WR which to me is stupid or work part time or something.
--> Another key point to me is how you estimate your expenses. No one has expenses that remain the same year on year. I have spend $1.5k on medical marijuana this year and so far $2k in preparation for surfing in the wave pool to be opened in Sydney. I might spend more next year. My only point here is the ERE approach of getting the lowest possible expenses to me is a bit stupid. You are just using dodgy data that limits you to get a really low WR. Your expenses within reason have to be realistic.
I’ve seen people on here saying they’re aiming for 3% just to be safe. Just madness. If retiring early in Australia, there’s no reason to aim for 5, 6 or even 7% depending on personal circumstances. Go and get a job at Bunnings if it all falls to shit prior to preservation age.
in all seriousness, what's the budget to be spending 80k per year as a retiree. don't you get senior citizen discounts on just about everything except food and fuel..
I haven’t done the numbers yet, as I need to properly code up realistic return series to simulate draws from (tried doing it in excel but got very slow very quickly due to number of formulas, so will need to use a proper programming language), but the strategy I’m going to aim for is something like “start by planning to take same as last year. If less than 3.5% of balance, take 3.5%. If more than 4.5%, take 4.5%”. By introducing a cap of 4.5% of balance, I should be preventing overdrawing when the market is down. Will try to keep 3 years’ draw outside portfolio in cash and draw that when equities are down.
In my opinion 4% is too high.
* It's based on US market data which had unexpectedly high returns over the period after coming out of the Cold War unscathed, which was by no means guaranteed beforehand; a similar performance might not be repeated
* Stock prices especially in the US and developed markets are currently high, based on CAPE, which predicts lower expected returns
* We are in a historically unprecedented global ageing population crisis, which augers for long-term higher inflation than markets are currently pricing in
* Early retirees need to drawdown for 60+ years, whereas the Bengen study (I believe) assumes a 30-40 year drawdown period
For these reasons I would prefer to set the safe withdrawal rate at 2.5 - 3% for a global index fund and maybe 3 - 3.5% for a global index fund with a small-cap-value tilt.
The Age Pension unfortunately is means-tested, so even if it continues in its present form, it provides limited safety, especially if it is not strictly indexed to inflation (currently inflation is used *as one input* to the Age Pension and I think we've all seen how high housing costs have risen compared to overall CPI).
>There is also no harm in assuming no age pension and building enough wealth to live without it. Everyone's circumstances are plans are entirely different.
My approach tries to strike a middle-ground.
I assume the Age Pension will exist and roughly track inflation. But I allow some flexibility in my planning so that it likely won't be ruined if the Age Pension is taken away or severely lags my personal realised inflation.
In my planning I rely on "lead time" and rebalancing. Basically, if I find out that the Age Pension will be removed a few years before the fact, then I will gradually re-allocate funds from my stocks to safer bond-like investments such as eTIBs and/or purchase an annuity. Given enough lead time and (by then) a big enough stock portfolio, I can hopefully reposition myself to be resilient without the Age Pension.
If I get extremely unlucky and the Age Pension gets removed immediately when I reach eligibility age with no warning whatsoever (unlikely but who knows?) then I'll have to reduce my standard of living. My drawdown rate assumes enough to pay rent in an outer suburb or region and live a very basic lifestyle. Maybe I'll work part-time if I want a nicer lifestyle.
The advantage of not pre-empting the loss of the Age Pension is that I can invest more heavily in stocks now, reaping (hopefully) a higher return in future, and thus more funds to protect me later when I get into my 60s.
>My approach tries to strike a middle-ground.
It's highly conservative and you'll be working considerably longer than you have too.
It's your choice but in my opinion your plan is a failure since you will definitely be working for considerably longer than you have too.
I'm retired and I think I worked too long and I'm nowhere near as conservative as you are.
I'm already FIREd so it's too late to do anything about working too long.
Anyway I agree it's very conservative and most people would probably be Ok with 4-5% drawdown as long as they index, keep fees low and have some flexibility.
good news, kids: mom and I plan to die with zero. Don’t bother attending the reading of the will, we will be consuming every dollar. Also the house is too big to look after at 80yo so will sell that to fund the aged care home which will surely cost a fucking fortune in the last 5 or 10 years of life.
Why are these scenarios so unrealistic.
That is good news for the kids. Die with zero plan means they are intending to help their kids out while still alive, not wait until they are dead.
Funding the aged care out of their home sale also avoids the kids having to pay for it.
For some people, they don't even make it to retirement age, and as a result bequeath a sizable estate with potentially a paid off home, savings account, shares, in addition to a six figure Super balance payable to the Estate, and a Life Insurance policy paid out to the Estate.
Elderly people who do go into a care home may not have much in the way of liquid assets, though they may have their PPOR still fully paid off and just receive the Aged pension as income.
So it generally follows a similar trajectory as the OP in most cases.
Good news, kids: mum and I hoarded an extra 1.5 million that we didn't need, but now that we're dead and you're in your 70s, you can have it. I know you already have a house, car and grown family, and you're too old to use it for anything interesting, but you can sit on this pile of gold now until you die! Sorry about watching you struggle through your 20, 30s and 40s, but at least you developed some character!
not everyone spits out kids in their 20s and anyway as the younger gen of kids and grandchildteh keep saying, its impossible to get on the property ladder now without bank of mum and dad. So few have the luxury of considering merely an age pension and small super drawdown.
Another point people get confused on is that it's 4% of the (inflation adjusted) *initial* value of the nest egg, not the *current* value. If you want to stay safe, you can't go increasing your draw-down in good years. That's buffer you need to be able to keep up the withdrawals in down years. I think it's also worth mentioning that the aged pension is a "back stop", in case you deplete your savings too quickly. You won't be getting any pension at all if you are a home-owning couple with more than $1M combined in Super and other assets. This is unlike the Social Security system in the US that you will see mentioned in a lot of retirement finance discussion. That system is more like a basic, pooled, government-run superannuation scheme.
> I think it's also worth mentioning that the aged pension is a "back stop", in case you deplete your savings too quickly. I disagree. The age pension forms a standard part of retirement planning. The intent and function of the age pension system is that most people qualify for a full age pension (the asset test cutoff is over 3x the median Super balance at age 67), and Super is a supplement on top of this to increase quality of life. Even if you have a large Super balance such as $1 million dollars, and are initially ineligible for the age pension, any retirement planner would plan what the maximum amount you could spend each year is, and in doing so you would draw down the balance and soon become eligible for a part pension, which would be factored in. > You won't be getting any pension at all if you are a home-owning couple with more than $1M combined in Super and other assets. That's actually not true, the assets test cutoff for a part pension for a home-owning couple is $1.003M. So if they had exactly $1M they would be eligible for part pension, and even if they're somewhat above $1.003M, as they spend down assets they will become eligible, and the part pension amount will increase over time.
>"You won't be getting any pension at all if you are a home-owning couple with more than $1M combined in Super and other assets." > >That's actually not true, the assets test cutoff for a part pension for a home-owning couple is $1.003M. > >So if they had exactly $1M they would be eligible for part pension, and even if they're somewhat above $1.003M, as they spend down assets they will become eligible, and the part pension amount will increase over time. You state that the post is not true, and then describe how it actually IS true by asserting the couple would need to lower their net asset position to below the threshold prior to being eligible for any part pension. I'm not sure why you took issue with the post above when it is absolutely correct and you affirm that it is correct in your reply.
The above post says: "You won't be getting any pension at all if you are a home-owning couple with more than $1M combined in Super and other assets" This is literally untrue, because you can qualify for a part age pension with up to $1.003M, which is an amount greater than $1M.
That might be the smallest hair I've ever seen split on this sub.
Hence I added the addendum that the age pension was relevant at higher asset values also: "even if they're somewhat above $1.003M, as they spend down assets they will become eligible, and the part pension amount will increase over time." Even if you have several hundred thousand over $1M, if you maximise spending you'll become eligible over time, contrary to the OP claim "You won't be getting any pension at all"
So this entire reply is basically a re-affirmation that you don't get the part pension until you're below the threshold. Which is true. You don't get any pension at all while your asset valuation is above the threshold - that's what the original post says, and it's entirely true. They don't assert that you will NEVER get a pension because at some point you had assets over the threshold, they simply affirm that if you are over the threshold, you don't get pension. 100% accurate. All you add is "yeah, but what if they WEREN'T over the threshold?"
They stated: "I think it's also worth mentioning that the aged pension is a "back stop", in case you deplete your savings too quickly". To me the above implies that it's not a standard or expected form of retirement planning, but is only relied upon as a "back stop" for those whose savings "deplete too quickly". When in fact access to the age pension is a normal part of retirement planning, including for people whose assets deplete at a slow rate, and are hundreds of thousands of dollars above the asset test cutoff.
Does any of the above have ANYTHING to do with the part of your post I quoted and responded to? Hint: no.
In your above reply, you demonstrate lack of understanding of what the original post says, or how my reply relates to that. I didn't directly address your comment "So this entire reply is basically a re-affirmation...", because that's not what the comment chain is about, but reiterated the actual meaning.
So your quibble is for those with asset valuations between $1,000,001 and $1,002,999? That precise and very tiny slice of the demographic of those with assets "above $1M"? Great. Kudos on your pedantry. So what you SHOULD have said in your original reply is that the net asset value is actually $1.003m instead of $1m, and the rest of your reply could be discarded as wholly irrelevant. The post you stated as "literally untrue" is in fact LARGELY true, because we don't always calculate asset valuations to the thousands when dealing with valuations greater than a million. The post you responded to is a rounded figure, and yet is still wholly accurate to two decimal places.
> So your quibble is for those with asset valuations between $1,000,001 and $1,002,999? That precise and very tiny slice of the demographic of those with assets "above $1M"? Don’t forget those with assets worth $1,000,00.01 to $1,000,000.99 and $1,002,999.01 to 1,002,999.99 or we’ll get another subthread.
I added the important addendum that even those with hundreds of thousands of dollars over $1M would become eligible for the age pension over time, if they're maximising spending. The OP comment said the pension only applied as a back stop for those who depleted savings too quickly. But in fact for people far over $1M, the inclusion of the age pension is a standard part of retirement planning. So the pension is broadly relevant for people with balances greater than $1.003M
I don't know why you got downvoted because that is good info.
> That's actually not true, the assets test cutoff for a part pension for a home-owning couple is $1.003M. Assuming your spouse doesn't die anytime during that period because if they do then if [becomes $667,500](https://www.servicesaustralia.gov.au/assets-test-for-age-pension?context=22526) so that'll throw a spanner into your calculations, so someone with assets in that range may go from part-pension and then they lose their spouse and then they are cut off until they fall below that lower cut-off point. >The age pension forms a standard part of retirement planning. It doesn't form any part of my retirement calculations. I'm four years away from Age Pension age and I already fail both the income test and asset test individually already for no pension entitlement. Barring something catastrophic happening like a nuclear WW3 I don't expect to ever be on an Age Pension.
> that'll throw a spanner into your calculations If your spouse dies you will double your liquid assets per person and reduce expenses, so your plan actually becomes more resilient (from a purely financial perspective). > I already fail both the income test and asset test individually already for no pension entitlement. If you planned to spend the maximum amount possible during retirement, get maximum value from your money, that would include receiving at least a part pension. If you're not receiving a pension eventually, you're dying with vast amounts unspent, can't take it with you.
> you can't go increasing your draw-down in good years. That's buffer you need to be able to keep up the withdrawals in down years. Except if it's super money then yes, you have the legislated withdrawal rate which is proportional to your now current value of the entire portfolio and increases as you get older, but usually the total portfolio growth has also exceeded the cumulative CPI. With annual returns averaging 8%-10% this usually means that good years will put you way in front over a long period of time so that bad years don't matter so much. Most pensioners with their own super living off that income tend to gravitate towards income paying blue chips and that usually easily covers the mandated withdrawals with the bit left over covering the entire portfolio keeping up with the CPI. Admittedly, inflation had been high for the past couple of years but that's out of line compared to the low values we've had since the start of this century, also during the Covid years the mandated withdrawals were reduced by 50%.
>Another point people get confused on is that it's 4% of the (inflation adjusted) *initial* value of the nest egg, not the *current* value. If people don't know this they really shouldn't be retiring. Early retirement is unusual. I'm 50 and I haven't met a single other person who is early retired my age IRL. You should get yourself across the data.
Great stuff. Thanks. I think it's OK to assume that pension will still exist. We run the numbers with the current rules and account for the inflation. We may become a dictatorship or the world may end. Those are things we cannot control. Best not worry about them.
Exactly. Imagine being 59 (or even 30) and rejecting super because of the risk of legislative change or working years more than you need to because you hate the thought of maybe ending up on the pension when you're 80 or 90. Play the game using the rules that exist and vote for politicians that represent your self interest. IE don't touch my super or tinker too much with the aged pension.
It's so interesting because a long-range thinking government (caveat: we have 3-4 year terms) also wants you to trust the rules so you commit more into super So both sides win by preferring stability of rules But it's just hard to know what a political party in power might do, especially when some systems might not be sustainable with demographic trends, etc.
Most changes to super have been relatively minor. Preservation introduction, how many 55/60 year olds had balance that they could retire on. Even for some 45-50 today might not have enough at 60. Only those actively invested will be affected and they invest knowing the rules. Transfer balance cap, indexed with **inflation** is a stretch target that won't mean much for many. Same for the sacrifice limit, indexed with **average income** (~30%). Not many but the most wealthy will have the capacity to invest more than that. Of course in 40+ years the values will converge. Minimum wage workers will have balance that exceed 3m. The TBC might be 4m, sacrifice limit could be 120k and without further changes balances will be bigger (wage growth) and the limits relatively smaller (cpi). Especially if they don't adjust the 30% $3m tax rate. Of course we all know the government likes to adjust income tax as require so maybe that'll be increased as more people exceed the marginal limit. Just like franking credits, cgt discount, land tax etc for any other investors. Rules will probably change but most will be grandfathered or be very gradual.
I tend to agree. Most the reforms required are on the super side (mainly to prevent this being upper-class tax welfare, as you point out with all these out-of-reach transfer balance caps etc.) There's also a longer term problem around solving the sustainability of pension problem, which super is definitely an important part of, and I think that's where some clearer stability of rules / clear stated plan and roadmaps would create confidence in the super system + take pressure off the pension system
Considering wages grows faster than cpi I see a point in the future that the annual sacrifice limit exceeds the balance transfer limit. Between 1993 & 2023 cpi increase by 2.7% and minimum wage by 4.1%. All the changes have been structural and will eventually result in very little real benefit without some relaxation of the rules. Sacrifice 30% of you wage in 1 year and that's the limit of your untaxed super. 27500 \* 1.0418^(300) =5,951,666,982 (sacrifice limit) 1.7m \* 1.027^(300) =5,030,000,000 (transfer balance limit)
It's so dumb. I've seen people arguing this and I just think you freaken idiot. Get across the data. Understand it. Anyone not having the aged pension as a back-up is a fool. \*\*\* I should add one little amendment. If you are a big spender the aged pension won't get the job done.
Years more of work just to be self funded at 95. Stretching for a 4% target that night not be achievable. No one is a big spending in their 80s and 90s. In anycase you can get the pension (plus rates discounts etc) and super for a pretty healthy quality of life.
It's insane. I've been focused on FI for years as well and so many times I hear people being so conservative which means they are consigning themselves to years extra at work. I went to the gym today and wrestled heaps. I'm 50. I'm about to go and have a lie down. Not going to work is awesome.
But demographics and maths can imply some things about the sustainability of the pension system I think super is intended to remove pressure on pension/allow a path to wean it away But it'll be interesting to see what happens politically. Either way the nation pays for it somehow That said I'm in favour of running numbers for various scenarios and being comfortable with either. I assume pension and it's freed me from grinding for a higher number. But if it goes I can live with less, and I can also earn more if I need to.
Pension in oz as a proportion of GDP is one of the lowest in the OECD. Even if the amount of Australians claiming the pension doubled overnight it would be less than most European countries. Paying for old people’s health care and aged care is the bigger problem
> I think it's OK to assume that pension will still exist. That’s your assessment of sovereign risk, but not everyone is going to have the same risk appetite. Some people will prefer to be more conservative and won’t include qualifying for an aged pension in their plans.
Agreed. They'll also be working a lot longer since they have a much lower appetite for risk while I'll be surfing and doing jiu-jitsu and reading books and playing tennis and living large. It's cool but I think it's stupid.
I'm not sure if it's worth calling out that the study (which I need to re-read) was looking at a 30 yr time frame. So if you retire at 40, your outside-super funds need to last you 20 years, therefore a rate >4% (or >4.7%) could apply? Once you're 60, the 30-yr safe withdrawal rate applied to your in-super sounds about right for a typical life expectancy. Curious on any thoughts from those more knowledgeable than me.
Definitely agree that your safe withdraw rate for a 10 year period of 20 year period will be drastically different. Using something like [https://ficalc.app/](https://ficalc.app/) can be useful in estimating this. $60k/year for 10 years succeeds 90% of the time with a portfolio of $640k, that's around 9.3% withdraw rate. $60k/year for 20 years succeeds 90% of the time with a portfolio of $1.1m, that's around a 5.5% withdraw rate.
Super has a minimum draw down which is greater than 4% very quickly Up to 64 4% 65 to 74 5% 75 to 79 6% 80 to 84 7% 85 to 89 9% 90 to 94 11% 95 and over 14%
Ah good point. But I think those percentages are of the remaining balance (which might be decreasing if you're withdrawing) whereas the 4% is meant to be of the initial balance (inflation adjusted).
Even better point! And yikes formatting. Also of course you can reinvest it regardless of the draw down if you’d like into a taxable account. But at that age I’d want to be blowing it all on business class flights before it’s too late.
Not if the average return is 8%-10% p.a. because that would be a toss of the coin for people in the 85-89 bracket at 9% and only more of a certainty for people in the 90+ bracket with their 11% withdrawal rate. And that's just a mandated withdrawal from a tax advantaged government super scheme. There's no requirement to spend all of that money withdrawn at the casino, in most cases people do use it and probably what's left over they just put into their bank account or invest it under their own name with their other financial assets.
You are spot on. I have my spreadsheet with a 95% success rate to get to 70. Pretty soon that gives me a WR of 6% and I'm not going above that on my spreadsheet. It's insane how much more money we can spend as we get older. Just to give some context. Right now we can spend with a 95% success to get to 70 54k but only 47 for the same success rate to get to Super. We are spending about 50k. In 5 years time that goes up to closer to 60k and I have my portfolio going down over time. So far it's gone up each year of retirement. That won't last though. The only point of difference I'd add is who cares once you get to 60. Your money depending on your spending level only has to last until 67. My main problem is just getting to Super. Your money doesn't have to last 30 years at that point unless you are big spender.
Yes, but your expenses may go through the roof later on. I read a comment where someone was talking about the impact of future climate change and they stated "If you think food prices have gone up a lot due to the cost of living crisis then you've seen nothing yet." so if that is the case then extrapolating future expenses by simply indexing them for expected future increases in CPI might be a bit foolhardy.
This is silly. You are basically stating that the future is going to be significantly worse than the past. If that is the case the whole idea of early retirement is over. It's work forever. The trinity study is based upon a 95% success with a set spending amount indexed to inflation. Your argument is stating inflation going forward is going to be considerably more than at any other time in the future. You could be right but you are significantly more likely to be wrong.
Only if you think climate change doesn't exist, we already have severe bush fires and who ever heard of a bush fire happening again at the same place a bush fire went through the year before because that would be the last place I would expect it to happen again so soon. We also have droughts, floods and even heavy rain just before harvest destroying things like cherries and apricots which swell up, split and then rot. We have had a taste of this during the [2007–2008 world food price crisis](https://en.wikipedia.org/wiki/2007%E2%80%932008_world_food_price_crisis) so these types of events are expected to become more frequent and severe. Lets see what happens with the hurricane season in the USA in about six months time with the current elevated sea temperatures as they are at the moment. I fear that I "could be wrong but I am significantly more likely to be right." and if that's the case I'll still be paying $65 per k.g. for blue eye fish and eye fillet steak for some time to come yet but I'm not sure what these people described here are going to do ["Hundreds of Australians say they skip meals, visit food banks and 'dumpster dive' as the cost of living crisis continues"](https://www.abc.net.au/news/2024-03-05/food-insecurity-cost-of-living/103521508). Since nobody has a working crystal ball and can't peer into the future then I guess we'll have to wait and see!
>Only if you think climate change doesn't exist I believe that climate change is an existential threat to human existence. In stating that this has nothing at all to do with the Trinity study. The trinity study states that in the history since we have recorded stock and bond prices there is a 95% chance of your money lasting 30 years on a 4% WR. What it basically states is that the best information that we have and having undergone depressions, recessions, wars, hyper-inflation, etc that the 4% rule survives. You are stating that the future from a financial markets perspective will be considerably worse than the past. Not just a little worse. You are stating it will be in that 5% of cases that fail or worse than that. That is simply an irrational perspective to put forward.
For as long as I can remember financial advisors in Aus have been using a safe withdrawal rate of 5% to account for the presence of the age pension.
Not sure why that's the case, super funds return around 8%-10% p.a. per year and even the ASX200 annual dividend yield is about 4.5% and grossing that up for dividend imputation will give you 6.4%. So you could pull all of that out and leave the rest for capital growth to match the CPI and by CPI I mean the low rates we've had since the turn of the century and disregarding the past couple of years high aberration.
I have a similar spreadsheet to that but has the option to not match inflation with drawdown. As you age you spend less so more fun to have a higher starting point and gradually lower real drawdown. The other thing to add to your sheet is to allow an amount for cars and home contents etc that are included in the assets test. If you add 100k for those your couple will run out of money much sooner.
I have about 100k outside of my financial assets. It's dodgy accounting but it's just to cater for any spending like that.
> As you age you spend less Generally true for discretionary spending for things like travel and cruises but increases greatly towards the end with non-discretionary things like health expenses and aged care.
I didn't think the Age Pension was worth much, but just so I'm clear... in the above table, in year 7, the couple takes $59,114 from their super, and the government gives them $20,885. Is that right?
That's correct. Assuming that nest egg is the assessed value of your assets for the age pension (you will need to factor some extra things like home contents, cars, etc). Using the example of year 7, the couple has assets of $734k, so they would receive an age pension of $805.90 fortnight.
Thanks.
Just to confirm, this is all taking the pension income threshold and deeming into account right? Most discussions focus on asset test only.
In all the examples i've ever seen, for someone living off equity investments it will be the asset test that gives the harsher result. I'm guessing this is why discussions then focus on the asset test.
The reason for this is that is [For every $1000 in assets above the applicable limit, your rate of pension will reduce by: $3 per fortnight, if you’re single $1.50 per fortnight for each member of a couple.](https://www.servicesaustralia.gov.au/assets-test-for-disability-support-pension?context=22276) the example I quoted is for DSP but I think its the same for Age Pension but not stated on the [Age Pension assets page](https://www.servicesaustralia.gov.au/assets-test-for-age-pension?context=22526) for some reason. If you think about it the $3 p.f. reduction is a total reduction of 3x26= $78 p.a. for that extra $1000.00 in assets. To get that sort of reduction under the income test [Amount your pension will reduce by, 50 cents for each dollar over $204 p.f.](https://www.servicesaustralia.gov.au/income-test-for-age-pension?context=22526) you would need to earn a rate of 15.6% p.a. on that extra $1000 being 50% of $156 = $78 p.a which is not a realistic rate of return for average investments. So you can clearly see that once the assets test starts cutting in it's pretty savage. Kindly note that a persons pension rate is worked out by applying the income test and working out a rate payable and then doing the same thing under the assets test and also working out a rate payable. The amount the pensioner then receives is the lower of the two tests. It's entirely possible that someone may be over the threshold with the assets test at the point where it starts reducing and be entirely unaffected by it because for example their gov't. superannuation pension reduces them even more under the income test (and vice versa).
The 4% rule also didn't account for earning any money after retirement or having a flex spending rate (normally withdraw 100k/yr, during markets downturns only withdraw 80k, change the annual trip to Europe with a trip to South East Asia or the teip to North America with a visit to South America, etc.). If you're in a couple, if both of you did just 1 day a week at a low stress job (something you'd enjoy - garden centre, babysitting, bunnings, guided tours, etc.) And earned 10k each a year you'd only need 80k from your portfolio, if you calculate the 100k/yr x 4% = 2.5m vs 80k/yr x 4% = $2m. So you'd have 25% extra in your investment portfolio. I'm not saying RE and get a part time job just that the chances of you never earning again are very very low, achieving FIRE is mostly a high income privilege, & the thought you'd not do the odd job/bit of consulting here and there or earn something from a hobby afterwards just doesn't seem to make sense to me.
There are many possible methods - I feel like the idea that I adjust upwards with inflation even though say the market is down 50% is just stupidity - no thinking human being would do that. The main planning concern is what happens when the market declines in a decent sized correction, which is something all retirees are likely to experience. This is one of the reasons that 60/40 or whatever is useful plus a cash account. If the market tanks and is now only 30/40 then the rebalance is critical because you would then sell bonds and buy equities on order to return back to 60/40. That rebalancing process is critical to buying low and selling high - ie the opposite would occur if equities are strong, leading to selling equities and buying bonds at rebalance. You can further modify that by how you treat your cash, which might be 2 years allowance - in a very good equity year you would top up your cash with equity sales, and in a bad equity year you might sit and use up the second years allowance. bucket strategy by Rob Berger https://youtu.be/gVYThVn5gQA?si=agcicQQm1QcBMGV8 I’m using 5% including tax flat, no cpi adjustment - I figure returns will provide a good enough growth over time to allow for cpi with balancing as per Rob Berger above If you can’t follow my description, watching the vid by Rob will make it far clearer than I can
[Ben Felix has a cool video](https://www.youtube.com/watch?v=1FwgCRIS0Wg) where he calculates the "real" rule to be more like 2.7% for someone living ONLY off their portfolio for a very long timeframe (no aged pension, no additional sources of income). Maybe limited applicability to an Australian audience but interesting to think about. Couple more interesting points to think about * A static withdrawal is always going to be inefficient, people wanting to get the most out of their wealth should really consider [variable spending rules](https://retirementresearcher.com/making-sense-out-of-variable-spending-strategies-for-retirees-2/) depending on how the market is doing that year * Something that makes the numbers look a lot more favourable is [the retirement spending smile](https://retirementresearcher.com/retirement-spending-smile/). As you get older you become a bit more sedentary, so many people can be comfortable withdrawing the same nominal amount each year (or adjust by an amount less than inflation). Then your costs go up again due to health complications, aged care etc. Of course if you're RE then this doesn't apply to you for a while.
The 4% rule in Australia is indeed a joke. If you've saved 25 times your annual expenses outside of super, and you're retiring at 40, guess what? Superannuation still exists. The age pension still exists. If you're retiring at 40, you only need to cover 20 years of expenses before you can access superannuation. So you probably need less than 20 years of expenses saved, at 40 a 5% withdrawal rate would be more than safe, probably even 5.5/6%(assuming you have enough in super + pension). If you're retiring at 50, you can use the 10+% rule. And then even post age 67, you don't need 4%, because almost everyone will receive a pension of up to $28'500 per year. So to have $40k per year post 67, you don't need $1 million in Super, you only need $250k (Age Pension + 5% from Super yearly). Retiring early in Australia could be done very cheaply (aside from the cost of housing).
No one is reasonably ignoring super in their fire calcs. You can still aim for 4% total including your super.
I'm sorry but I've heard heaps of people state to ignore Super and heaps to ignore the pension. There are some situations where this may be valid but they are rare.
Ignoring super is pure stupidity, it’s literally invested money. Honestly I’ve never seen someone say that thankfully.
I have. I've tried to argue with them as well. It astounds me. Heaps of people ignore the pension as well which is the perfect hedge against failure.
I like your attitude. I retired at 47 and we didn't earn great money. At best I earned 150k and my wife 50k. That was at best. We did buy our house at a lower cost since it was 15 years ago and we did get some help from my in-laws.
A couple of points:- 1. The trinity study is a bit old and a bit too focused on a specific portfolio allocation. You can amend the situation a bit and I think argue for a higher withdrawal rate. 2. I am retired and I retired on about a 5% WR. I think people think this is insane however over time I'm budgeting for spending close to a 6% WR. A 6% WR gives you a 50% success rate over 30 years so to me anything above a 6% WR is in some ways a bit silly. I should add I'm 50 and my conservative 6% WR is really conservative since we have the pension. --> I really get the impression you are arguing for higher WR's and I agree and I'm doing that now and it's working out great. The only caveat I'd add is age. If I was retiring at 30 I might prefer to get to a 3% WR which to me is stupid or work part time or something. --> Another key point to me is how you estimate your expenses. No one has expenses that remain the same year on year. I have spend $1.5k on medical marijuana this year and so far $2k in preparation for surfing in the wave pool to be opened in Sydney. I might spend more next year. My only point here is the ERE approach of getting the lowest possible expenses to me is a bit stupid. You are just using dodgy data that limits you to get a really low WR. Your expenses within reason have to be realistic.
I’ve seen people on here saying they’re aiming for 3% just to be safe. Just madness. If retiring early in Australia, there’s no reason to aim for 5, 6 or even 7% depending on personal circumstances. Go and get a job at Bunnings if it all falls to shit prior to preservation age.
Thanks, the spreadsheet in particular is super helpful in showing when and at what proportions pension payments kick in.
in all seriousness, what's the budget to be spending 80k per year as a retiree. don't you get senior citizen discounts on just about everything except food and fuel..
Withdrawal *
I haven’t done the numbers yet, as I need to properly code up realistic return series to simulate draws from (tried doing it in excel but got very slow very quickly due to number of formulas, so will need to use a proper programming language), but the strategy I’m going to aim for is something like “start by planning to take same as last year. If less than 3.5% of balance, take 3.5%. If more than 4.5%, take 4.5%”. By introducing a cap of 4.5% of balance, I should be preventing overdrawing when the market is down. Will try to keep 3 years’ draw outside portfolio in cash and draw that when equities are down.
I'm curious if capital gains tax is considered by the 4% rule?
In my opinion 4% is too high. * It's based on US market data which had unexpectedly high returns over the period after coming out of the Cold War unscathed, which was by no means guaranteed beforehand; a similar performance might not be repeated * Stock prices especially in the US and developed markets are currently high, based on CAPE, which predicts lower expected returns * We are in a historically unprecedented global ageing population crisis, which augers for long-term higher inflation than markets are currently pricing in * Early retirees need to drawdown for 60+ years, whereas the Bengen study (I believe) assumes a 30-40 year drawdown period For these reasons I would prefer to set the safe withdrawal rate at 2.5 - 3% for a global index fund and maybe 3 - 3.5% for a global index fund with a small-cap-value tilt. The Age Pension unfortunately is means-tested, so even if it continues in its present form, it provides limited safety, especially if it is not strictly indexed to inflation (currently inflation is used *as one input* to the Age Pension and I think we've all seen how high housing costs have risen compared to overall CPI). >There is also no harm in assuming no age pension and building enough wealth to live without it. Everyone's circumstances are plans are entirely different. My approach tries to strike a middle-ground. I assume the Age Pension will exist and roughly track inflation. But I allow some flexibility in my planning so that it likely won't be ruined if the Age Pension is taken away or severely lags my personal realised inflation. In my planning I rely on "lead time" and rebalancing. Basically, if I find out that the Age Pension will be removed a few years before the fact, then I will gradually re-allocate funds from my stocks to safer bond-like investments such as eTIBs and/or purchase an annuity. Given enough lead time and (by then) a big enough stock portfolio, I can hopefully reposition myself to be resilient without the Age Pension. If I get extremely unlucky and the Age Pension gets removed immediately when I reach eligibility age with no warning whatsoever (unlikely but who knows?) then I'll have to reduce my standard of living. My drawdown rate assumes enough to pay rent in an outer suburb or region and live a very basic lifestyle. Maybe I'll work part-time if I want a nicer lifestyle. The advantage of not pre-empting the loss of the Age Pension is that I can invest more heavily in stocks now, reaping (hopefully) a higher return in future, and thus more funds to protect me later when I get into my 60s.
>My approach tries to strike a middle-ground. It's highly conservative and you'll be working considerably longer than you have too. It's your choice but in my opinion your plan is a failure since you will definitely be working for considerably longer than you have too. I'm retired and I think I worked too long and I'm nowhere near as conservative as you are.
I'm already FIREd so it's too late to do anything about working too long. Anyway I agree it's very conservative and most people would probably be Ok with 4-5% drawdown as long as they index, keep fees low and have some flexibility.
I'd increase spending. We are spending more in retirement but we came from a low base. It's done now though so who cares.
wow a general rule needs adjusting for different circumstances, I would never have guessed
good news, kids: mom and I plan to die with zero. Don’t bother attending the reading of the will, we will be consuming every dollar. Also the house is too big to look after at 80yo so will sell that to fund the aged care home which will surely cost a fucking fortune in the last 5 or 10 years of life. Why are these scenarios so unrealistic.
That is good news for the kids. Die with zero plan means they are intending to help their kids out while still alive, not wait until they are dead. Funding the aged care out of their home sale also avoids the kids having to pay for it.
no kids are getting funded drawing down 4% from a $1m super nest egg ..
That's because if planning properly, they've already taken the kids' funding out before calculating what is required for themselves (the $1m).
Couldn’t agree more. So many folks assume a nice clean wind down to old age and finally death. Unfortunately for most it doesn’t happen that way.
For some people, they don't even make it to retirement age, and as a result bequeath a sizable estate with potentially a paid off home, savings account, shares, in addition to a six figure Super balance payable to the Estate, and a Life Insurance policy paid out to the Estate. Elderly people who do go into a care home may not have much in the way of liquid assets, though they may have their PPOR still fully paid off and just receive the Aged pension as income. So it generally follows a similar trajectory as the OP in most cases.
Because not everyone can afford to have kids anymore
Good news, kids: mum and I hoarded an extra 1.5 million that we didn't need, but now that we're dead and you're in your 70s, you can have it. I know you already have a house, car and grown family, and you're too old to use it for anything interesting, but you can sit on this pile of gold now until you die! Sorry about watching you struggle through your 20, 30s and 40s, but at least you developed some character!
not everyone spits out kids in their 20s and anyway as the younger gen of kids and grandchildteh keep saying, its impossible to get on the property ladder now without bank of mum and dad. So few have the luxury of considering merely an age pension and small super drawdown.