Lifetime Income vs Term Deposit (Cash PIE)
The following is a simple comparison between a 90-day term deposit and the Lifetime Income Fund. The scenario is a 65 year old male (Bob) with $100,000 invested in term deposits and is drawing down 5% per year. Bob is in good health and has a personal tax rate of 17.5%. He uses the draw-down to supplement NZ Super to meet everyday expenses and has additional savings of $300,000.
Bob would be better off in the Lifetime Income Fund than in TDs. Assuming term deposit rates don't increase.
The Cash PIE term deposit rates (1 year) as quoted by interest.co.nz (25th March 2016), highest investment band.
Provider 1 year
Using a simple average across all providers, less tax at 17.5%, to give a net return of 2.71%. We apply a draw down rate of 5% and an earning rate of 2.71% at age 65.
Using the same approach with the Lifetime Income Fund, which like the term deposit is liquid and licensed by the RBNZ. The Lifetime Income Fund has a higher expected earning rate of 3.68% after deduction of fees and PIE tax and guarantees a draw down rate of 5% for life.
Learn more about the Lifetime Income Fund
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