New Report From Morningstar Research Suggests Super Withdrawal Rate Increase in 2023
Every year we closely scrutinise the results of the annual report from international research firm Morningstar about their view of what a so-called ‘safe withdrawal rate’ from a diversified investment portfolio is for retirees. What is surprising is that the report indicates a higher rate than a year ago.
You have already received several articles from us explaining Australia’s current high annual inflation rate and how it is now at its highest level since 1990 and also that in 2022 the fixed income and equity components of your portfolio each retreated in value at the same time.
However, not all is doom and gloom, there may actually be a silver lining to all of this because equity valuations have declined and cash and bond yields have increased, the forecast amounts that new retirees can safely withdraw from investment portfolios over a 30-year horizon have risen in the past 12 months.
If you take the time to read the report you will see that Morningstar has declared 3.8 per cent as a safe starting withdrawal percentage, up from 3.3 per cent in 2021.
As positive as the report’s outlook is, caution is required because Morningstar dramatically increasing its return assumptions and to some extent, those assumptions are fairly heavily reliant on recent results. In the end, no one can accurately predict the future and there is no way of proving that Morningstar’s return assumptions are too high.
For those people who are retired and receive regular income from an Account Based Pension fund would already know that they have a limited say on the minimum rate of withdrawal because government legislation decrees that retirees under the age of 65 withdraw a minimum of 4 per cent each year, the rate sliding upwards with increasing age.
As of the time of writing this article, those minimums have been halved for the past three financial years because of the global pandemic. As yet, no decision has been made by the Albanese government regarding maintaining that reduced minimum for the 2023-24 year.
Please click here to view the full report.
Sources:
https://www.abs.gov.au/statistics/economy /price–indexes–and–inflation/consumerprice–index–australia/latest–release
https://www.morningstar.com.au/insights/ personal–finance/230063/whats–a–safewithdrawal–rate–today
https://www.yourlifechoices.com.au/financ e/superannuation/calls–for–lowermandatory–drawdown–rates–to–be–madepermanent/
