Actuaries develop rule of thumb to avoid frugal, fear-based drawdowns by retirees

A new working group of actuaries developed a three-part rule for single retirees who receive a full or part Age Pension payment who are not accessing financial advice to assist in understanding how much to draw down from their retirement savings.

The Rule of Thumb Working Group rule says to draw down a baseline rate as a percentage that is the first digit of their age. If the account balance is $250,000-$500,000, then add two per cent (so long as they meet the statutory minimum drawdown rule).

A single retiree aged 60-69 with an account balance of $350,000 means drawing down eight per cent of savings - six per cent for their decennial age and the additional two per cent, leaving an annual drawdown of $28,000.

Nicolette Rubinsztein of the Actuaries Institute commented that many Australians can afford a better lifestyle than they currently have, but aren’t confident enough to draw down more money than the minimum required by the government for fear of running out of money. This choice leaves retirees living frugal lives.

Rubinsztein says the new rule of thumb is simple and accurate and will solve the issue so long as the retiree’s asset base and age is taken into consideration. The ASFA retirement standards suggest a single retiree would need just under $28,000 to have a modest lifestyle.