AGE PENSION PROVIDES A SAFETY NET

Critically, as the member’s overall assets fell in this scenario, the part age pension grew. The bucketing solution versus 100% cash meant the member’s age pension increased by more than 50% in the first year.

While the drawdowns from super were $4500 lower, the members made up the shortfall, thanks to means testing of the age pension (see table).

“Effectively, the age pension becomes a put option on any downturn in market prices. It also means the member’s cash bucket lasts longer, allowing a higher chance of recovery without eating into capital,” says Rice Warner.

“Given asset allocation is the No. 1 driver of net returns to members, taking small and simple steps such as the example above has the potential to protect retirees and deliver a great outcome.” Vita Palestrant was the editor of the Money section of The Sydney Morning Herald and The Age and has won several prestigious journalism awards here and overseas.