Why SMSF retirees will need an extra $120k to retire
Self-managed super fund retirees need a lot more money in savings to achieve a comfortable retirement than they did a year ago.
Just how much more? Around $122,000 or 17%.
A couple need $824,000 in their fund to pay out a retirement income of $60,063, ASFA's comfortable retirement figure, according to a research by Accurium, an actuarial firm, and the SMSF Association. This compares with $702,000 last year.
Ultra-low investment returns, particularly from cash and fixed income, are to blame.
Still, 66% of SMSF trustees can remain confident (with an 80% probability) that they are well placed to live comfortably in retirement on $60,063 a year.
Of retirees who want to spend more - $70,000 a year - around 50% can be confident of achieving this goal, while 39% can be very confident of doing so, according to Doug McBirnie, Accurium's general manager.
At an aspirational level of $100,000 a year in spending, 28% can be confident and just 20% very confident. One in four SMSFs are unlikely to achieve their goals.
Accurium's research is based on a database of over 65,000 SMSFs. It found that median SMSF balances were up 1.2% for the 2015-16 financial year, based on a median investment return of only 1%.
One of the reasons the return is so low is conservative investment portfolios. However, a weaker investment outlook means retirees need to save more to afford their desired lifestyles.
"The upshot for the average SMSF household approaching retirement is that their improving balance has not been able to keep up with the increased cost of meeting their desired lifestyle in retirement," says McBirnie.
"This is largely due to an increased probability of a 'lower for longer' situation where interest rates and equity returns remain low. This was reflected by the Reserve Bank noting in July that the neutral nominal cash rate, a key indicator, is now 3.5% rather than 5% previously.
"Even so, SMSF households are still better placed than most sectors of the community to meet their financial goals in retirement."
Contrary to the widely held belief that bequests are central to SMSF retirement plans, McBirnie found that only 7% of SMSF households have specific inheritance plans.