Obtaining the best client outcome with a transition to retirement strategy is more difficult than many people realise. I suspect that many of the implemented strategies are less than optimal.
As observed before, the changes to the minimum drawdown levels and concessional contribution caps have a major impact on the optimal level. The proposal to allow a higher concessional contribution for members with account balances of less than $500,000 means the emphasis needs to change to both members of the couple. An extra year or two at the higher cap can result in up to $7,000 or so more p.a.
Where these calculations are really coming off the rails is that for many people the wrong question is being answered. Often the aim will be the optimal outcome for a targeted retirement adequacy objective. TTR members are in the final few years to retirement where the issue of whether built up assets are adequate is highly pertinent. You can ascertain whether the computational model you are using is up to the task by asking whether it takes the following into account:
- does the adequacy evaluation take future Age Pension entitlements into account;
- are these entitlements based both on anticipated couple and eventual single rate pension entitlements;
- is the longevity risk management plan formally specified;
- is a sensitivity analysis performed;
- is the deductible amount based on projected factors.
If the answer to one or more of the above questions is no, then a better outcome could probably be created for the client.
The NetActuary Team