Should you drop your drawdown rate?

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The government has temporarily reduced minimum drawdown rates for income streams. Should you seize them with both hands? Or are you better off sticking with your current budget?

                                         

For the 2019/20 and 2020/21 financial years, the minimum rates have been reduced by 50 per cent in response to the coronavirus pandemic. This change gives you the choice to preserve more of your capital while investment markets continue reacting to the pandemic.

 

You can see the reduced rates here.

 

Should I change my rate?

There’s no doubt that in the current climate, having flexibility to reduce your drawdown rate is a good thing. But it’s not a one size fits all solution.

 

Whether to use the drawdown relief to keep more money in your account for now, or maintain your current rate, depends on your situation. Are you partly or fully retired? What’s your budget and lifestyle? It comes down to how you plan to balance these factors in unbalanced times.

 

What do I need to think about before I decide whether to change my rate?

Here are some options to think through before you decide.

 

  • Do nothing: stick to your current drawdown rate and long-term investment strategy, and ride out the market fluctuations. History tells us markets will recover from major events like the pandemic.
  • Take advantage of the new minimum income payments: try and hold on to some of your underlying capital while the markets remain bumpy.

 

No matter which of these you choose, you might want to rethink your finances over the next few months. Here are a few ideas.

 

  • Pick up some form of paid work to top up your income: can you work part time and/or from home for a few months?
  • Review your living costs: is now the time to look for a better deal on your energy or internet provider? Can you reuse or recycle rather than buy new, or buy later?
  • Contribute any extra income you’ve already received back to super, if you’re transitioning to full retirement: make sure you’re aware of the work test rules and restrictions. 

 

And the biggest one: talk to an expert.

You can get general advice on your income stream from HESTA at no extra cost: it’s all part of your membership. Our advisers can help you understand all your options to keep your finances in balance.

 

I’m keen to change my rate. What else do I need to know?

  • You can change the frequency, drawdown and amount of your income stream payments in your online account or by completing the Income stream change of income payment amount and frequency form.
  • If you’ve already withdrawn over the new 2019/20 minimum, you can’t put the amount withdrawn above the new minimum back into your income stream account.
  • Your request must be received within five days of your next payment.

 

Uncertainty is temporary – but we’re always here for you

 

We’re privileged to have you as a member, and we’re ready and waiting to help you whenever you need us.

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