MSF members moving into retirement enjoyed healthy returns in the 2014 tax year with median SMSF balances rising 5.2%, even after pension drawdowns, according to a new report from SMSF retirement specialist Accurium.
Strong investment markets buoyed SMSFs which achieved investment returns of 8.2% before tax, but after fees, one of the best performances in recent years. The typical trustee couple withdrew a net $12,000 from their funds because many were using a transition to retirement strategy.
Accurium’s report Bridging the prosperity gap shows that the median balance for SMSF households moving into retirement is now materially over $1 million. Median balances for SMSF couples in this cohort rose to $1.09 million in 2014.
Accurium Chief Executive Officer Tracy Williams said: “With the deadline for 2014 SMSF annual returns now passed, this is the first report to show the changing state of SMSFs for the year.
The analysis is drawn from Accurium’s database of over 65,000 SMSFs and comes ahead of the Australian Tax Office’s Statistical Overview for 2014, which is likely to become available in December 2015.
“The good news is that strong investment returns in the past two years have produced relatively large increases in balances. SMSFs are in the comfort zone for retirement, however, for most, a more prosperous retirement lifestyle remains out of reach.”
Accurium’s research shows that a 65-year-old couple would need about $900,000 to have a reasonable degree of confidence (80% probability) that they would achieve the comfortable standard of $58,784 income per year for life, set by the Association of Superannuation Funds of Australia (ASFA). The 2014 median SMSF balance for 65-year-old couples is $1.16 million, according to Accurium’s Retirement Insights report, materially above what they require for that level of spending.
The report shows that the ‘comfortable retirement age’ – when trustees can have reasonable confidence of achieving the comfortable standard – is now 60, for couples with a median balance, down from 62 in 2013.
While these figures assume continued spending at the same level, in reality retirees’ spending patterns change as they get older and when a spouse passes away. Allowing for this can have a significant impact. Accurium’s research shows that 65-year-old couples happy to accept that their spending will reduce as they age would need $591,000 to be reasonably confident of affording an ASFA comfortable lifestyle.
However, SMSF trustees who aspire to a more prosperous retirement lifestyle have further to go. Only 28% of couples aged between 55 and 70 can be reasonably confident of affording a lifestyle costing $100,000 per year for life if they retired today, even allowing for reduced spending later in life.
Ms Williams said: “SMSF trustees are prepared to work longer and retire later to achieve financial security. There are around 31,000 trustees in our database who are still contributing to and growing their retirement savings beyond the age of 65.”
Healthy recent returns boost SMSF balances
| Commencing
retirement |
30 June 2010 | 30 June 2011 | 30 June 2012 | 30 June 2013 | 30 June 2014 |
| Median balance for two member SMSFs
(aged 55 to 70) |
$971,000 | $998,000 | $973,000 | $1,037,000 | $1,091,000 |
| Year on year increase in balance | n/a | 2.8% | -2.5% | 6.6% | 5.2% |
| Median investment return | 6.9% | 6.5% | 0.6% | 9.4% | 8.2% |
Accurium’s modelling takes a probability-based approach, which factors in 1,000 investment scenarios, to show the capital levels required for trustees to retire with confidence of achieving the retirement lifestyle they want.
Accurium’s dataset of over 65,000 SMSFs represents SMSF households who are phasing into retirement and, together with its industry-leading Retirement Healthcheck model, allows unparalleled insight into how well prepared SMSFs are for the retirement they aspire to.
SMSFs in the comfort zone but prosperous retirement lifestyle elusive
Download report, Bridging the prosperity gap
Source: Accurium
