Retirees are not unnecessarily frugal

The amount retirees draw down their super is rational and does not point to unnecessary frugality, according to Rice Warner.

In an analysis, the research house said the Retirement Income Review’s suggestion that retirees did not draw down enough of their super was only based on small studies which coincided with high investment returns.

Pointing to data of those who were aged 65 to 70 in 2000, Rice Warner said there was a trend in Age Pension dependency of the surviving pensioners.

“The trend shows that people do spend quite a bit of their accumulated superannuation early in retirement – more self-funded retirees shift to part pensions over time, and more part pensioners shift to become full pensioners,” it said.

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“Overall, the behaviour appears rational and does not point to unnecessary frugality.”

People aged 65 to 70 in 2000

Source: Rice Warner

Rice Warner said while the overall dependency on the Age Pension increased with age, there were steps that could be taken to improve expenditure patterns in retirement.

It said some steps included:

• Increasing the drawdown rate from 5% to 6% between age 65 and 75 to encourage higher drawdowns from a tax-privileged environment earlier in retirement;
• Making those over age 65 draw down from their accumulation accounts as well as pension accounts – this would reduce those funds not needed for retirement but held in a tax-privileged environment; and
• Introducing default comprehensive income products for retirement (CIPRs) for those with more than (say) $200,000 account balances at retirement to encourage smoothing of their retirement income over the remainder of their life.