Ask Paul: What is the best strategy for drawing down super?

Dear Paul,

What are your thoughts on sequencing/buckets versus dollar cost averaging (DCA) when drawing down super? Is there much difference in strategy outcome?

The bucket strategy seems like hard work to me - how do you decide when is a good time to replenish the cash bucket?

Whereas dollar cost averaging looks like set and forget. Would appreciate your thoughts. - Helen

I'm with you, Helen. I generally find buckets most useful for bailing water out of my little dinghy, let alone sequencing my money in super into different risk categories and then drawing it out based on market timing.

This is all way too clever for me. Anything to do with market timing is, in my experience, a complete waste of time.

I am not in the least unhappy with the idea of different pools of money when looking at a budget. It makes complete sense to me to 'save first, spend later'.

So if people want to call that a savings bucket and a spending bucket, that is okay with me.

For generations, many families managed their money by having several large jars above the fireplace. It helped that pay used to come home in cash.

The rent or mortgage money would go in one jar, food money in another, clothing and school, then holidays and entertainment was last.

This jar only filled up if everything else was covered. The savings jar might get a little in good weeks, but not often.

Dollar cost averaging is one of the few true money miracles. It works wonderfully well as money goes into our super. At high points in the market, our money buys us fewer investments.

At low points, we obviously buy more. No skill required or guessing the market. Regular contributions do the trick.

Once money stops going into super and it comes to drawing down, it becomes a little more challenging.

High points in the market mean you need to sell fewer units for a given drawdown. Low points mean you need to sell more units for a given drawdown.

Trying to time drawdowns with the market cycle is not going to work. We'd all be billionaires if we could do this.

So I share your sentiment. Any decent, large, low-fee fund or your own DIY will have generated good returns in a tax-advantaged structure for decades.

I imagine your drawdowns, like ours, are a relatively small percentage of the fund each year, and I would not be trying to time the ups and downs of the market.

Along with everyone else, I certainly did not pick the 15% decline in April this year, nor the return to record highs in mid-June.

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