Withdrawing Retirement Savings
Dave and Sue are both 65 and considering retiring. They are not sure whether the $500,000 they have between super funds and bank term deposits will be enough.
They have been reading a recent guide to help New Zealanders understand how to spend their retirement savings. They don’t intend to work but they will receive $30,000 from NZ Superannuation each year (after tax).
The guide offers four ideas for deciding how much they may be able to spend each year.
1. It is safe to spend 6% of retirement savings each year, or
2. Spend 4% each year plus the prevailing inflation rate.
3. Pick a date in the future and work out how many years between today and that day – then divide your saving by the number to determine how much to spend each year, or
4. Identify how long you expect to live and subtract this from your current age then divide by your savings to again determine how much to spend each year.
Using these calculations it appears Dave and Sue can spend $20,000 to $30,000 of their savings each year.
But it’s not as simple as that, there are many other important factors that need to be considered such as what their goals will be over those years e.g. buying a new car or having holidays overseas will require extra drawings. They will need to decide now whether they can adjust to this level of drawings as their current income is well above $50,000 – $60,000, they may decide to work a little longer.
It is good to raise awareness about retirement income issues and give simple guidance information about what constitutes a safe withdrawal rate but this will never be easily defined as peoples circumstances are subject to change – life happens!
Advice about your particular circumstances is critical. Having an investment strategy that is tailored to you that can grow your savings through the retirement years by generating income and also some growth, will help replenish some of your annual drawings.
This information is general. A Disclosure Statement is available on request.