How the drawdown projection works

Read this first

The model

For each year from your current age to 105:

Step 1 is the part most calculators skip, and it is why they get the answer wrong. The Age Pension is means tested on assets, so as capital falls the pension rises. Feeding a static pension figure — or none at all — into a drawdown model understates longevity, often by more than a decade.

The projection does not re-implement the pension. It calls the same engine that powers the Age Pension calculator, and a test asserts that year one of the projection equals a direct call to that engine. One set of pension rules, one place to fix them.

Step 6 matters more than it looks

When the legislated minimum forces more out of super than you need to spend, that money does not disappear — you must withdraw it, but you can reinvest it outside super. A model that treats the forced excess as consumed will show capital running out years too early. Here it moves to your outside-super balance and keeps working, and a conservation test asserts that household wealth changes only by what was actually spent.

Couples where only one of you has reached Age Pension age

This is the most common pre-retirement household, and it is the one a projection is most likely to get wrong. Two things are true of it that a point-in-time calculator can ignore and a thirty-year projection cannot.

First, the younger partner's superannuation is exempt. While they are under Age Pension age, their super is not counted in either the assets test or the income test. Pooling it with the assessed balance overstates your assets and so understates your pension — often by thousands of dollars a year. The calculator therefore takes your partner's super in its own field and holds it aside.

Second, the status does not last. Your partner reaches Age Pension age within a few years, and from that point the household is an ordinary couple on the couple rate. Freezing the “one of us is pension age” treatment for the whole projection would understate the pension for decades. So the calculator asks for your partner's age, and in the year they reach Age Pension age it releases their super into the assessed and spendable balance and switches to the couple rate. You will see the balance step up in that row of the table.

One deliberate conservatism: the model also treats your partner's super as unavailable to spend until they reach Age Pension age. In practice preservation age is 60, so that money may well be accessible earlier. Treating it as locked away for longer than it really is understates how long your capital lasts rather than overstating it, which is the direction an illustration should err in. It also means the “total” balances in the year-by-year table are drawable capital and exclude the preserved pot until it is released.

Real terms, not nominal

Everything on the calculator is in today's dollars. You enter a real return — the return after inflation and fees — and spending stays constant in today's money. A closing balance of $200,000 in twenty years therefore means what $200,000 means now.

This carries one approximation worth stating: Age Pension rates are indexed to the CPI, so in real terms they are treated as roughly constant. Over long periods pension rates have tended to rise slightly faster than the CPI because of the benchmark to male total average weekly earnings, so this assumption is mildly conservative.

Legislated figures used

Minimum drawdown factors are set in the superannuation law; the ATO publishes them as Table 11, "Minimum percentage factor for certain pensions and annuities", which the ATO itself labels indicative. They are applied to the account balance and rise with age:

These are minimums, not maximums — there is no cap on withdrawals from an account-based pension. All Age Pension rates, thresholds and deeming rates come from the same verified source document described in the Age Pension methodology.

How this is checked

A projection has no published answer to test against, so the assertions are structural — they are the properties that break when a projection loop is wrong:

• Conservation. With a zero return, closing capital must equal opening capital minus what was withdrawn plus what was forcibly reinvested, every year. No year may draw more than exists, and no balance may go negative.
• The pension must rise monotonically as capital depletes, and must reach the full pension.
• Monotonicity in each input. More capital never runs out sooner; higher spending never lasts longer; a better return never runs out sooner.
• The minimum binds. With spending set far below the forced minimum, the minimum is still withdrawn and the surplus is reinvested rather than lost.
• No re-implementation. Year one of the projection must equal a direct call to the Age Pension engine.
• Fails loud. A missing statutory figure or a missing pension engine throws rather than silently producing a number.

What is not modelled

• Sequencing risk and volatility — see the note at the top. This is the most important omission on the page.
• Tax. Account-based pension payments after age 60 are generally tax-free, but income earned outside super may not be.
• Aged care — entry costs and ongoing fees change both spending and the means tests, often sharply and late in life.
• Life events: downsizing, an inheritance, a lump sum, a change in relationship status, or the death of a partner — each changes spending and the Age Pension, usually in opposite directions.
• Rent Assistance, transitional-rate pensions, and any product-specific fee or insurance premium.
• Spending that changes with age. Real retirement spending often falls through the seventies and rises again with care needs; this model holds it flat.
• Any guarantee. Nothing here is a promise about your capital, your returns, or your entitlements.

How to use it well

The least useful thing you can do with this tool is run it once and write down the age. The most useful is to run it three times — at a low, middle and high real return — and look at how far the answer moves. If one percentage point swings the outcome by a decade, that spread is the finding, and it tells you far more about your position than any single line ever could.

Citing this calculator