The members of Australia’s half-million SMSFs are well-placed for a “comfortable” retirement and can maintain this lifestyle over the long term, according to the findings of the first study into retirement adequacy based on actual SMSF data.

“The facts are in, and the news is good”, said Tracy Williams, Chief Executive of consulting firm Accurium (previously Bendzulla Actuarial).

“While many people may fear the prospect of outliving their super, most SMSF members don’t need to worry, because they stand a very good chance of enjoying a ‘comfortable’ retirement”.

Accurium’s “Retirement Adequacy” paper analyses data from 60,000 SMSFs across Australia and is the first publication in the company’s new “SMSF Retirement Insights” series.

It reveals that the typical 65 year old SMSF couple can spend up to $58,128 p.a. with a high degree of confidence that they won’t run out of money. This annual budget is the Association of Superannuation Funds of Australia (ASFA) ‘Comfortable’ Retirement Standard for a couple.

“The really good news is that they can safely increase this ‘comfortable’ spend in line with inflation and maintain their purchasing power over a long retirement that could last 20 or 30 years or more”, said Williams.

Accurium’s confidence in SMSF’s retirement adequacy comes from the fact that the balance of a typical 65 year couple’s SMSF exceeds the $849,000 which the firm calculates is required to support that level of spending throughout retirement, indexed for inflation. Their analysis assumes that retirement income is sourced from a ‘balanced’ portfolio of investments, is supplemented by age pension entitlements under current rules and that members are ambivalent about leaving an inheritance.

“By using a “balanced” portfolio for the duration of retirement, our study also challenges the common belief that retirees should become more conservative as they age. It shows that they can maintain a half-weighting to risk assets and still be confident of a comfortable retirement”, said Williams.

“With this kind of asset mix still proving popular among SMSFs, our “base-case” findings should give many people confidence around meeting their retirement goals and remaining financially independent as they age.

While the news is good for SMSFs with balances clustered around the median, Accurium delivers a caution for SMSF retirees who have fund balances or retirement plans which deviate significantly from the ‘typical’ fund.

“For SMSFs with balances substantially less than the median, it’s a different story”, said Williams.

“The same goes for anyone who wants to retire earlier, spend more than $58,128 p.a., or who wants to leave a definite bequest. These people should seek expert to help ensure they remain in control of their financial future rather than leaving it to chance”.

Additional findings

Early and comfortable retirement still possible for SMSFs

While the reality of working longer is sinking in for millions of retirees, SMSF couples can still afford to retire at 62 and enjoy a ‘comfortable’ and long retirement. The median balance of a typical 62 year old couple’s SMSF is higher than the amount needed to support $58,128 p.a, indexed for inflation.

A little luxury awaits SMSFs in retirement

The typical 65 year old SMSF couple can actually afford to spend $7,000 p.a. or $135 a week more than the ASFA Comfortable Standard, allowing them additional luxuries like more frequent weekends away, dining out and other entertainment and leisure activities.

Big spending SMSFs warned against over-confidence

SMSF retirees drawing much more than the ‘comfortable’ level of income face a much lower chance of sustaining this spending throughout retirement.

More than half of 65 year old SMSF couples don’t have a big enough pot to confidently spend $70,000 each year for life, while 75% don’t have enough capital to confidently spend $100,000.

Of course, the level of retirement spending which can be confidently maintained by typical 65 year old SMSF couples will increase if they also hold significant financial assets outside of their fund, a not uncommon situation given that compulsory superannuation only commenced 22 years ago in 1992.

For this reason, Accurium’s study also evaluates SMSF retirement adequacy at various ages under higher total wealth assumptions.

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