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Selected reader comments on retirement spending article

The article by former leading superannuation consultant, Don Ezra, on his calculations on how much to spend in his own retirement attracted great reader interest and so far has been viewed over 12,000 times.

Many readers have done similar calculations for their retirement, and their experiences and learnings are worth sharing. We reproduce selected comments on how not to run out of money (with minor editing).


I think you are over thinking. Invest in well run companies (wealth creators) and the rest will take care of itself. That has been my approach and as a result my SMSF is worth a lot more than when I went into pension phase. If you want some personal cash safety to ride out periods of low stock prices I think a large overdraft facility secured against the house is a good idea, but the main question is what you buy not the percentage allotments of risk.


SMSF commenced 2000 invested 100% equities. Imputed credits have offset mandated withdrawals and growth has ensured capital has not declined. Am in my 92nd year and capital is the same as in 2000 although purchasing power has declined.


Heartened to see my much less analytical approach looks about right. I am working on a 5% of total assets (in and outside super) as an annual budget and around 5+ years of cash reserves. I currently have more like 8 years of cash (more if I allow for cash generated via dividends etc) but am not sure if now is the best time to add more to my growth assets (currently 60/40 growth/defensive with a 75/25 target; the 60/40 mix has about 8% historical return and the 75/25 around 10%). As the current mix is still providing >5% return hence not drawing down capital, I have some reserves to add to the market if there's a fall. Intending to revisit the plan every three years and adjust.


Thank you Don for your very enlightening article. It has convinced me that I have taken an excessively conservative approach with our SMSF, so it's time to take a bit more risk.

(My reply to John: Hi John, not offering any investment advice but markets are expensive and Don's article is about positioning for the long term. Portfolio adjustments are best done gradually towards a goal, and living with the short-term volatility).

Jon Kalkman 

"Because we’re always withdrawing money, our assets decline over time. So if we have poor returns early, there won’t be enough of a base to make up the losses even if the later returns become above average. So we need to be able to make withdrawals without affecting the shortfall too much."

With this one paragraph, Don has described the problem that I have with institutional super funds funding my retirement that I do not have with our SMSF.

It is possible to structure an SMSF so that that the pension withdrawal is paid from income produced by the fund, not by selling assets.

In an institutional fund I buy assets (units in the fund) with my super contributions in accumulation phase. In pension phase, each pension withdrawal is paid by the sale of some units in the fund. Once sold, these units cannot be replaced as a pension fund cannot accept any more contributions. The number of units sold depends on the unit price and the process continues until all units are sold and the pension expires. Selling assets into a falling market (think GST or COVID) simply hastens the day when the pension stops. Selling assets to fund a retirement raises the critical question: “Will I expire before my assets do?”

It makes sense to take pension withdrawals from a non-volatile bucket such as cash but this is only a temporary solution because assets still need to be sold when the cash bucket needs to be replenished. It is just that in timing such a sale, it may be possible to avoid a market downturn.

With an SMSF, the pension withdrawal is paid from income produced by the fund, not by selling assets. A cash buffer is still needed to cover any unexpected shortfall in income. It means the fund is less concerned with market volatility and that means the asset allocation can be tilted towards growth assets and higher returns.

As this strategy provides adequate income now, and in the future, this could continue indefinitely if it wasn’t for the mandatory pensions that increase with age. In time, some assets will need to be sold to pay these large pensions but it does not mean that the capital is lost. It simply means that this capital must be removed from the tax-concessional area of a super pension fund. It can therefore be reinvested outside super to continue to produce income - albeit in a less attractive tax environment.


Jon, you make some valid points about the issues with unitised investments that reinvest dividends/distributions. A similar "income drawdown from dividends/distributions plus cash bucket" strategy can be put in place in Industry and retail structures via a Self Managed option. You swap some flexibility (some percentage of assets may have to be held in the Industry fund's options and there may be restrictions on ETF's, funds and shares) and possibly lower brokerage costs for less admin as the "back end" is all handled by the fund.

Outside super you could employ this strategy "income drawdown from dividends/distributions plus cash bucket" losing some flexibility but leaving the "back end" to fund.

Jon Kalkman 

In an institutional fund there are certain advantages because you are not the trustee.

The “Self-invest” option is just one of the investment options you can choose. You can allocate your money among other managed options as your needs change and that may be attractive as you get older. There is also no more compliance paperwork such as the audit or tax return.

But there are also disadvantages because you are not the trustee.

The fund trustee owns the shares, not the member. These “shares” can be sold without your knowledge or consent. The member does not automatically benefit from share ownership, eg. share buybacks.

The “dividend” is paid to your account by the Fund, not the share registry. Any franking credit refund is paid to your account by the Fund, not the ATO. Your pension must be paid from a managed option, not from your “dividends”. These arrangements depend on fund policy, not legislation and are easily changed.

The fund provides no advice on your asset allocation to equities. In fact, you are charged extra to use you own broker. The fund accepts no responsibility for your investment outcomes. Clearly, they prefer to have your money in their managed options because that generates their fees.


Jon - really good points, thank you ! That said, some institutional funds allow you to 100% 'DIY' (individual shares, LICs, ETFs if you wish) these days (in their 'member direct' offers) 


Although many of the principles are similar, the Australian retirement landscape is a little different in that:

- income and capital gains are tax free
- mandated minimum drawdowns as you age

I agree the old 60/40 equities/bond split is a bit academic as is the mantra that the "% in Bonds should equal your age". Somewhere between 2 and 4 years living expenses in Cash/Bonds seems about right to weather most storms, so it then becomes an Asset Allocation decision!

Given the tax free status in pension mode in Oz, it does not really matter if you chase income or you realise capital gains when required. What I am seeing amongst a number of retirees in their mid 70's and 80's with reasonable balances of $1m or more, where they are "forced" to drawdown 6% or 7% of their Super Funds each year, it is often "more" than they need. While it may forcibly "come out" of Super, dependent on their other investments, it may still be invested, effectively, tax free, with any income under the income tax thresholds. Not all bad!


Hi Rob, from 65 - 74 years old, we compulsory to withdraw 5%. Then from 75 is 6% etc. I think it is fair, because all the income or capital gain in our pension fund (which changed to allocation) are tax free. Government aim self fund retiree to spend their money. If you do not need 6% and 7% to live on, you still can invest outside the super. Yes, pay tax if you make profit or have distribution.


Spot on! If you have the assets to do so, set aside up to 5 years cash as a buffer to live on if markets have a major correction, and then actively invest the rest. Just by increasing the amount in active growth and income investments early on, you increase your overall pot SO MUCH MORE than the traditional ultra conservative approach. In Australia, with franked dividends and tax free pension earnings, you may find your pot grows much faster than you can draw it down. You should be able to generate in excess of the 5%, 6% etc. mandated annual withdrawal. And as the pot grows, the amount you withdraw also goes up - and you can put aside outside of super, what you don't spend to splash!

A fixed percentage in conservative investments doesn't make sense if you have substantial balance to start with - just work out what you will need and invest the rest.


The safety amount should factor in annual income from investments (or at least a portion of annual investment income for safety reasons) as this is cash available each year. When this is done, it will increase the % in growth investments.

John De Ravin 

I agree with Tony’s comment. In Australia for example, due to our tax regime, companies pay quite high dividends- they probably average out to 4% to 5% inclusive of imputation tax credits. It’s true that dividends fall when the market tanks, but by proportionately less than the fall in market values. The dividend stream has a big impact on the size of the cash bucket that you need to maintain.


The "real" problem is that the only attractive longevity insurance of relevance to most retirees is the capital and risk free Age Pension.

Fortunately, it is about 2 x the cost of living for home owners.

Thus investments need only furnish the cost of entertainment and a capital buffer (the full Age Pension Asset Test $401,500).

From a fund invested in risk free assets yielding real 0%, to withdraw for 30 years $37,000 / y to equal the capital and risk free Age Pension requires initial capital deposited into the fund of:

= PV(0%, 30, 37000, 401500, 0)
= $1,511,500


These are general comments from readers, not personal investment advice. Don Ezra says he will follow up with another article to address some of this feedback.


Manoj Abichandani
July 18, 2021

After advising over 300 SMSF clients for almost 30 years, I often wondered how my retirement would shape after looking at 300 examples. My motto was simple, money has limited purpose and as we age, we need less - the only exception being medical need. So you should have enough and unlike others contributed maximum for me and my wife since we set up our own SMSF at the begining of my advisor practice. And the contributed amount grew - many assets were sold during accumulation phase - and 10% CGT paid - the the proceeds were used to buy new assets which also grew.

So, I have a message to others. When you are growing your retirement tree - make it big - when it is big, it will give fruit, lots of fruit. The tree will fruit every year. Eat as much as you can and give it your kids and your relatives and back to the society whatever you cannot eat.

The key point in my comment is that - once you reach retirement age - it is already too late to worry about allocation etc - this has to be done at accumulation phase - contribute more and maximixe returns on those contributions. Or in other words - if you are going to end up with $1.7M with your current investment plan - end up with $3.4M each - you will have enough even if markets drop or give you low returns. Start this planning early.

July 19, 2021

"Or in other words - if you are going to end up with $1.7M with your current investment plan - end up with $3.4M each - you will have enough even if markets drop or give you low returns. Start this planning early."

Maybe I snuck in under the radar, but I would suggest this is probably beyond most people/couples reach, even Firstlinks readers?! If you can, great, well done and good luck to you!!

July 26, 2021

An individual saving and investing from 30 to 67, 20% of average weekly earnings, starting with $0 and finishing with $3,700,000 would require a real rate of return on investment of:

= RATE((67-30),-(20%*52*1711.6),0,3700000, 0,0%)
= 8.1%

With 3% inflation, nominal return:
= (1+8.1%)*(1+3%)-1
= 11.3%

Bruce Gregor
July 17, 2021

The future path of inflation remains as big an uncertainty as longevity to factor into investment and spending plans of retirees. As baby boomers enter their second decade of retirement, inflation may not be as benign as the first decade. From indexes I canculated that a 75% growth fund returned 8.6%pa for 2011 to 2020 while CPI inflation averaged 1.9%pa - a real retrun of 6.7%pa. That means, after allowing index fund fees of say 1%, they could have drawn a CPI indexed income starting at 5.5% of assets and ended with the close to the real value of assets still there. If you tried to do this same indexed spending rate in the last wild inflation outbreak in the 1970's decade, you would end of with real value of assets halved. In the decade 1971 to 1980 a similar 75% growth fund would have averaged 12.0%pa but CPI inflation averaged 10.5%pa for a real return of 1.5%pa. Australia's increased debt, disputes with China, future cost of subtantial welfare, growing divide between incomes and housing access of essential workers and the afluent, is in my view sowing the seeds of wages pressures and import price and supply costs like we experinced in the 1970s.

David L Owen
July 15, 2021

Don makes some very worthwhile comments in his article. Unfortunately, he seems to suggest that sMSFs are the preferred structure to generate pension income streams because of the ability to separate income from the original capital and any subsequent appreciation and/or depreciation in the capital.

Perhaps Don could include wrap accounts as being another totally valid solution as they also enable the separation of income and capital. Plus, they relieve the superannuation pensioner from the burden of administration, compliance and trustee responsibilities which are associated with SMSFs.

We had a SMSF from late 1980 and finally closed it two years ago. What a relief, particularly as we age and have many other priorities.

Gary M
July 15, 2021

I know there is a lot of theory on this subject, but I'm happy that if I withdraw 5% a year, it will never run out, whether it's from income or capital. There are far more uncertainties in my life than recalculating this based on how long I may or may not live.


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