Want to retire comfortably? Spend your savings
Believe it or not, this is literally the situation in Australia for a great many baby boomers, including me. I wonder how many other countries have retirement systems which operate like this? Let me know.
Now there are two ways of retiring well. Having a superannuation balance of $1.2m and above, or having a balance of $400,000. In between you get screwed. Most baby boomers do not have $1.2m because the superannuation system started in the 1980s More later.
Going back many decades, everyone who reached 65 got the age pension, including millionaires, who did not need it, but invariably took it (Dame Patty Menzies took pride in it). This stupid waste of taxpayer money changed, and currently a couple over 65 with assets (excluding the home) of $400,000 or less get a full pension of about $37k.
The rub is that after that, every $100,000 of superannuation reduces the pension by $7800, so that the pension disappears at around $800,000. And every retirement planner Iíve read insist that long term growth of savings will be no more than 5%, and 7.8% is unthinkable. So the more you have up to the magical $1.2m will have you worse off.
People with $400,000 can comfortably draw down 5%, add it to $37k, and you have $57k tax free. People with $800,000 who draw down 5% get $40k.
As a result of this advisers are telling retirees with between $400,000 and $1m to spend. Particularly those on $800,000 to $1m, as if they can get below $800,000 they get a part pension and the wonderful pensioner concession card.
Crazy, but true. And Australian governments know the cost of changing even stupid pension rules (franking credits, anyone); they lose government.