## How long will your savings last in retirement?

#### Try our ‘Money Life Calculator’

To roughly work out the life expectancy of your retirement savings, just go to the column which matches the average annual earning rate your investments should achieve (net of fees), then move down that column until you reach the average annual drawdown rate (see far left hand column) you will be making on your savings (your drawdown rate is: the amount of income & capital you will withdraw from your investments each year, divided by the amount you have invested, multiplied
by 100).

The number you arrive at in the table estimates the number of years your money will last.

Here’s an example of how to calculate your drawdown rate: Let’s say someone has \$600,000 in retirement savings and they require an income of \$54,000 p.a. Their drawdown rate is:

\$54,000 ÷ \$600,000 x 100 = 9%

If their earning rate is say 4%, then their money will last around 15 years.

To ensure our calculator has as much relevance as possible we recommend the following tips:

If you want your retirement income to increase with inflation, you can take that into account by subtracting the expected rate of inflation from the earning rate of your investments. We expect inflation to average around 3% p.a., so if your investments earn on average say 7% p.a., then you would select 4% as your ‘real’ earning rate.

If you will qualify for the Centrelink Age Pension, here’s how you should include it when you calculate your drawdown rate. For example, let’s say a homeowner couple aged 65 has \$400,000 in savings which earns 7% p.a., (that’s about 4% after inflation) and they require \$42,000 a year income. They should initially qualify for age pension of around \$24,000 p.a. (indexed). So, to calculate the life expectancy of their retirement savings, they should use a drawdown rate of 5% (i.e. [\$42,000 less \$24,000] ÷ \$400,000 x 100). Given the real earning rate of 4%, this means their savings should last about 41 years.

Of course, our ‘Money Life Calculator’ is just a guide. To accurately assess the life expectancy of your retirement savings you should talk with your financial adviser. They have access to a sophisticated software system which takes into account all of the variables and calculates taxation and Centrelink benefits each year of your retirement.

#### Strategies to help you stretch the life expectancy of your retirement savings

• Increase your contributions to super before you retire (and possibly use the ‘Transition to Retirement’ rules to create additional tax advantages)
• Arrange your finances so you reduce your tax in retirement
• Increase the return you generate on your investments
• Arrange your finances to qualify for higher Centrelink benefits
• Retire later
• Work part-time in retirement
• Lower your income requirement in retirement
• Decide to leave less or nothing to your estate.

For the majority of retirees, the most appropriate solution usually involves many strategies. And your financial planner will be pleased to model different scenarios for you to ensure the right combination of strategies is employed for your situation and lifestyle needs.