I’ve just retired with $650k in super. Should I spend it faster?

I’m 69 and have been retired for four years. I own my home and have about $650,000 in superannuation. I’m cautious with money and generally only withdraw the minimum required from my super. However, I’m starting to wonder whether I’m being too conservative. I’d love to travel more, but I’m worried about needing money for aged care or medical expenses later in life. How do I strike the right balance between enjoying my retirement savings now and ensuring I have enough for the future?

Thanks for your question. This is a common problem for retirees because we don’t know how long we are going to live, and what our health situation might be like towards the end.

Ideally, have your financial planner do some modelling for you. You can test different rates of spending and get a feel for what might be possible. We’d normally run some stress tests too, so you have a sense of resilience.

If you are not already receiving a part age pension, you will likely become eligible in the years ahead. As you progressively use up your super savings, your age pension entitlement will grow. This provides a great inflation-adjusted income source that you know will keep paying for as long as you live.

The integration of the age pension with your other financial assets, principally superannuation, is a core aspect of Australia’s retirement system. As our age pension benefit rises, you need less from super, preserving its life.

To provide an increased level of certainty, you could complement your age pension with a life-time annuity. This would mean converting a portion of your super savings into an annuity. As an illustration, $250,000 converted to a lifetime annuity would pay you about $19,000 per year, with partial inflation adjustment. It would likely also give your age pension entitlement a bit of a boost.

You would then have confidence that no matter how long you live, you will at least receive your age pension and annuity income regularly. Perhaps that would enable you to be more comfortable spending your other savings in the coming years, while you are fit and able to enjoy some travel adventures.

Many years ago, when I bought my first home, I took out life insurance to protect against the mortgage. Over time, I’ve reduced the cover to keep premiums affordable. I’ve now paid more in premiums than the policy is worth, which feels like money wasted. I have no debts or dependants, and enough savings to cover funeral expenses. Should I cancel the policy and redirect the monthly premiums into savings? Or maintain the cover, having already paid so much into it?

The good news here is that you haven’t needed the insurance. The money you’ve paid in premiums hasn’t been wasted. You and your family had the insurance in place to protect you against a consequential adverse event.

The hope with any insurance should be that you never need to claim, but we take out insurance where the impact of an insurable outcome would be financially significant. Insurance is not a savings vehicle. Having insurance in place provides peace of mind.

Having now reached the stage in life where you have no debts or dependents, it may well be appropriate to cancel the policy. It would be worth just checking if there is any disability cover associated with the policy, as depending on your circumstances this could remain relevant to you.

Paul Benson is a certified financial planner at Guidance Financial Services – Retirement Planning specialists. He hosts the Financial Autonomy podcast. Questions to: paul@financialautonomy.com.au

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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