The strategy of drawing the dividends (plus franking) and selling a little bit of capital to fund the balance of retirement expenses makes a lot of sense. This strategy mitgates sequencing risk in a way that traditional Account Based Pensions (ABP) fail to do. With an ABP all dividend and other income is immediately reinvested in the market so each pension "pay day" assets must be sold to make the pension payment. The retiree can be exposed to significant sequencing risk in this scenario. Unfortunately super funds are struggling to transition from wealth accumulation (where reinvestment of income makes sense) to providing income streams (where reinvestment of income makes little or no sense). This situation is even more pronounced for high balance retirees who may be able to live off dividends alone and may choose never to sell down capital. Why should these retirees elect be exposed to sequencing risk through an ABP when it is so unncessary?
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The strategy of drawing the dividends (plus franking) and selling a little bit of capital to fund the balance of retirement expenses makes a lot of sense. This strategy mitgates sequencing risk in a way that traditional Account Based Pensions (ABP) fail to do.
With an ABP all dividend and other income is immediately reinvested in the market so each pension "pay day" assets must be sold to make the pension payment. The retiree can be exposed to significant sequencing risk in this scenario.
Unfortunately super funds are struggling to transition from wealth accumulation (where reinvestment of income makes sense) to providing income streams (where reinvestment of income makes little or no sense).
This situation is even more pronounced for high balance retirees who may be able to live off dividends alone and may choose never to sell down capital. Why should these retirees elect be exposed to sequencing risk through an ABP when it is so unncessary?