The NZ Society of Actuaries Retirement Income Interest Group (RIIG) says the combination of low interest rates and improving longevity could mean that people’s retirement savings may run out earlier than they had planned.

RIIG convener Daniel Mussett warned, “If you are planning on drawing down income from retirement savings you may well have to reconsider how much income you can expect and adjust your planned drawdowns to meet a revised income plan.” 

In 2017, the RIIG released a paper on four general “rules of thumb” to support people planning to draw down retirement savings.

The aim was to provide a guide on ways to draw from retirement savings, what level of income that might provide, and how long it might last. 

Mussett says those rules of thumb (listed below) have now been re-tested to take account of record low interest rates and increased longevity. The findings of this updated testing are available in a new paper just released. 

The rules

1. 6% Rule: Each year, take 6% of the starting value of your retirement savings. You receive the same nominal amount each year but the length of time you receive it for varies.
2. Inflated 4% Rule: Take 4% of the starting value of your retirement savings, then increase that amount each year with inflation. You receive the same real amount (ie inflation adjusted) each year but the length of time you receive it for varies.
3. Fixed Date Rule: Run your retirement savings down over a period to a set date – each year take out the current value of your retirement savings divided by the number of years left to that date. The amount you receive each year varies but the length of time you receive it for is known.
4. Life Expectancy Rule: Each year take out the current value of your retirement savings divided by your average remaining life expectancy at that time. You receive a payment each year until you die but the amount varies.