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Many Australians spend too little in retirement
Saving as you approach retirement is wise and highly recommended. However, as you approach retirement it’s important to also acknowledge the effects of spending too little once you get there.
You don’t need to go on an irresponsible spending spree in your first day of retirement. But, unless you’re determined to leave behind a significantly large inheritance, you can probably spend more than you think.
The growing trend of under spending in retirement
In the lead up to retired life it is of course important to focus on budgeting correctly and maximising your super contributions. However, once you retire it’s just as important to shift your focus to enjoying your savings.
Some economists have found that Australians are becoming increasingly reluctant to spend their savings in retirement. This trend means that many people are passing away wealthier than when they entered retirement.1
The current tax incentives for investing in superannuation can make it tempting to save as much of it as you can.
Australia’s rules for minimum annual drawdowns of super savings
In order for your investment earnings to be tax free, current legislation states:
- If you’re in your late 60s you must withdraw at least 5 per cent of your super each year in the form of an income stream
- When you reach your 95, you must withdraw at least 14 per cent in the form of an income stream. If you’re aged between 90-94 you must withdraw at least 11%.
These rules are a helpful guideline to follow. However, drawing down a higher percentage each year could benefit your lifestyle.
Keep in mind that reaching retirement means that you’ve worked hard for many years. It's a time to consciously invest in your goal standard of living and enjoy, more so than to simply build up your wealth.
