28/04/2016

Last month we met Mickey, a 60 year old retiree wishing to pay a pension using his self managed superannuation fund, and we looked at all the things he could do if he had a little money.

A number of advisers have commented on last month’s article to assist Mickey so we thought we’d share their thoughts.  
 
You remember we spoke about Mickey who had a superannuation balance of approximately $700,000, and we looked at the impact of using minimum pension withdrawal rates to pay his pension.
 
Gary Miles from Miles Financial in Victoria pointed out an error in Mickey’s calculations; using the minimum withdrawal pension rates his pension will actually last much longer than he first thought. If he takes out the minimum percentages, still without making allowances for compounding or investment, his pension will last into his 90s.

There are still perhaps justifications for the review of the withdrawal rates, however, but it seems that Mickey in the simple scenario we provided is more likely to be able to sustain his lifestyle than anticipated.
 
Dennis Barton from Barton Consultancy in Western Australia took the exercise further. He pointed out that when we consider this element of superannuation it is remiss to exclude consideration of compounding and market movement. Dennis points out that there are other factors, such as personal circumstances like marital status and other non-superannuation assets, which would have an impact on Mickey’s access to other sources of money.

Whilst in Mickey’s circumstance the idea was to illustrate a simple example (obviously nothing in superannuation is simple), it is crucial to be aware that there is a much broader situation to consider when evaluating your own superannuation fund and investment strategy, and your financial adviser can be of great assistance, just like they have been to Mickey, in navigating that strategy for your fund.
 
Many thanks to all our readers who provided their comments and ultimately came to Mickey’s aide; in particular emphasising the point that the review of the minimum pension withdrawal rates is a complex, multi-faceted discussion that needs to be well thought out, and ought to draw on the wealth of experience and knowledge from within the industry itself.