The Cost of Impulsivity

A common pitfall for newly retired investors is the failure to consider the impacts of lump sum withdrawals on their retirement income streams! Consider this, a recently retired investor with an income-oriented investment portfolio of $500,000 with underlying assets yielding 5% p.a. equating to $25,000 p.a. or $2,083/mth of investment earnings. This investor, while happy with the current level of income, decides without seeking advice to withdraw $75,000 for the purchase of a caravan, CGT issues aside, the new portfolio balance of $425,000 can only generate $21,250 p.a. in investment earnings or $1,770/mth, meaning the cost of the caravan could be considered to be $75,000 in addition to investment earnings forgone of $312/mth. It is important to seek financial advice before making any lump sum withdrawals as often there are more effective ways to arrive at the same destination.