Boosting confidence in retirement

Every retirement is unique. Maybe dining out isn’t your thing, but you couldn’t bear to give up your weekly exercise classes.

Figuring out how much you can spend in retirement requires planning. And knowing what you can afford to safely spend, based on the savings you have, will also help you to identify any gaps between your expectations and reality.

This retirement income model is a comprehensive model of retirement. It calculates safe spending rates, taking into account the means tested Age Pension, as well as the three major risks to your retirement income (inflation, market and longevity).

By testing 2,000 simulations, it can calculate the degree of confidence that your savings balance could support the level of spending.

What is a ‘safe’ spending level?

A spending level is considered to be ‘safe’ if the household has a high degree of confidence that they can continue spending their desired amount for at least as long as both spouses are expected to live (their life expectancy). You may have a different idea of the amount you can safely spend and still have confidence that your savings will last.

The tables below are provided for illustrative purposes only and show the ‘safety’ of different spending rates for couples and singles of different levels of wealth, retiring at age 67 today.

Australian safe spending rates for a 67-year-old male (assuming spending keeps pace with inflation)

Total retirement savings Confidence of being able to spend $50,000 p.a. Confidence of being able to spend $70,000 p.a. 
 $200,000 0% 0%
 $600,000 81% 1%
 $1,000,000 100% 55%


Australian safe spending rates for a 67-year-old female (assuming spending keeps pace with inflation)

Total retirement savings Confidence of being able to spend $50,000 p.a. Confidence of being able to spend $70,000 p.a. 
 $200,000 0% 0%
 $600,000 68% 1%
 $1,000,000 99% 39%


Australian safe spending rates for a 67-year-old male and female couple (assuming spending keeps pace with inflation)

Total retirement savings (per person) Confidence of being able to spend $50,000 p.a. Confidence of being able to spend $70,000 p.a. 
 $200,000 99% 3%
 $600,000 100% 89%
 $1,000,000 100% 100%

Total retirement savings excludes principal residence.

A retirement spending planner will help you determine how much you may ‘need’ in order to meet your basic living costs and how much you may ‘want’ to cover discretionary costs in order to maintain your desired lifestyle in retirement. Ideally, this should closely match what you can safely spend.

But what if there’s a gap between what you think you’ll be spending in retirement and what you can safely spend? If your basic living and discretionary costs are less than you can afford to spend, you may be being too conservative and not living the life you could.

Or if your basic living and discretionary costs are more than you can afford to spend with the required level of confidence, you run the real risk of running out of savings later in life.

The retirement danger zone

Running out of money later in life is a big concern for many retirees. 95% of those in a 2018 National Seniors Australia Survey indicated that it’s important to ensure that their money lasts their lifetime.

There are investments you can make to ensure you don’t run out of income later in retirement. There are risks that living longer, inflation and share market volatility can have on your savings and income.

If you only invest in market-linked investments, such as via an account-based pension, there is a chance that you’ll end up in what we have called the ‘retirement danger zone’.

As shown below, this is a period later in retirement where you may be unable to continue to cover your basic living costs due to the income from your market-linked account-based pension running out.

This diagram is illustrative only and not to scale. It may include other income sources such as term annuities, term deposits, shares, managed funds and cash.

If you’d like to find out more about how to look forward with confidence in retirement, contact our financial planners to discuss more.

Some of the key things to note about the calculations underlying these tables are:

  • the total retirement savings is assumed to be invested in an account-based pension and is available to be used to support that level of spending (there is no assumed bequest);
  • the life expectancies used to generate longevity scenarios are based on the Australian Life Tables 2015-17 with allowance for the 25-year mortality improvement rates published by the Australian Government Actuary;
  • the calculation models 2,000 simulations of retirement for the household and determines in what proportion of those scenarios the spending rate was achievable every year to life expectancy;
  • the 2,000 scenarios of investment return and rates of inflation used have been generated by Moody’s Analytics using their Scenario Generator;
  • asset allocations are based on a 50% growth, 50% defensive asset mix in superannuation, with non-superannuation savings invested in cash;
  • no allowance has been made for tax on non-superannuation savings, and all superannuation savings are assumed to be in tax-free retirement phase;
  • the Age Pension is allowed for using Centrelink means testing rules applicable from 20 September 2022, i.e. we assume the person is eligible based on residency rules;
  • if the minimum pension payment in any particular year, as required under the Superannuation Industry Supervision (SIS) regulations, plus the Age Pension and income earned on any cash balance, exceeds the household’s spending, then this is added to the household’s non-superannuation cash assets. This cash balance earns interest which is assumed to be available for spending;
  • if the minimum pension payment and Age Pension is less than the spending rate then additional drawings are made from superannuation, and then from cash (if available), to fund spending;
  • all Centrelink rates, bands and thresholds used are those current as at January 2023. All rates, bands and thresholds are assumed to change in line with inflation each year;
  • we have allowed for the following fees and charges:
    • superannuation administrative fees 0.4%
    • superannuation investment fees of 0.8% on growth assets and 0.4% on defensive assets
    • no fees on non-superannuation cash savings


Source: Challenger

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