SMSF trustees can meet retirement goals despite tough environment

The proportion of 65-year-old self-managed superannuation fund (SMSF) couples able to afford a comfortable lifestyle has fallen from 70 per cent to 66 per cent over the year to 30 June 2016, according to the SMSF Association and Accurium.

In a joint report, the firms found the result of the neutral nominal Reserve Bank of Australian cash rate of 3.5 per cent (1.5 per cent lower than previous views) was that while the average SMSF trustee approaching retirement balance was improving, it had not been able to keep up with the cost of meeting their desired lifestyle in retirement.

“As a result, fewer SMSF couples are able to afford the comfortable retirement lifestyle of $60,063 per annum, as defined by ASFA [the Association of Superannuation funds of Australia],” the report said.

“It is worth noting It is worth noting here that we are comparing SMSF balances at a single point in time (30 June 2016) with estimates of the amount needed to fund spending needs over the whole of retirement, often extending over 30 years.”

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Accurium’s general manager and senior actuary, Doug McBirnie, said: “This is largely due to an increased probability of a ‘lower for longer’ situation where interest rates and equity returns remain low”.

“Even so, SMSF households are still better placed than most sectors of the community to meet their financial goals in retirement,” he said.

However, despite weaker returns in 2016, the analysis found that SMSF trustees still had a good chance of sustaining the typical $70,000 a year lifestyle in retirement.

The median balance for a 65-year-old SMSF couple was still sufficient to sustain the SMSF ‘typical lifestyle’ of $70,000 a year with 80 per cent confidence.

The report also found that 28 per cent of 65-year-old SMSF couples could retire today and spend $100,000 a year, 50 per cent for $70,000, and 66 per cent for $60,063.

However, the median desired spending level was $78,800 (up from $75,000 a year earlier), and 24 per cent aimed to spend over $100,000 a year.

The report noted that while the median balance for a two-member SMSF increased by a modest 1.2 per cent, the median imputed investment return was one per cent. This was in comparison to a 2.9 per cent per annum return for Australian Prudential Regulation Authority (APRA) regulated super funds over the same period.

It said this weaker investment outlook meant retirees needed to save more to afford their designed lifestyles in retirement.

SMSF Association head of technical, Peter Hogan, said the report highlighted that most SMSF trustees were still on track to meet their retirement goals, despite a difficult investment environment and low interest rates.

“But for trustees and their specialist advisers, these are challenging times, especially on the investment front. From our perspective, this is why it’s critical superannuation has a sustained period of stability free from significant changes to give trustees greater confidence in the system,” he said.