There has been a sharp increase in the SMSF account balances a couple would need to fund a comfortable retirement, according to SMSF actuarial services provider Accurium.
The firm’s latest SMSF Retirement Insights report estimates that the amount needed for a 65 year old couple to afford the $60,063 of annual income that the Association of Superannuation Funds of Australia says is a “comfortable” retirement income has risen from $702,000 to $824,000 over the past 12 months.
The increase is based on Accurium’s view that investment returns are likely to stay “lower for longer”. The 65,000 SMSFs in its data base that are paying pensions produced a median investment return of just 1 per cent in the 2015/16 financial year.
If investment returns remain in the low to middle single-digits for a prolonged period, retirees will start to consume their capital much earlier.
Doug McBirnie, Accurium’s general manager and senior actuary, says that SMSF members are actually aiming for higher retirement incomes than ASFA’s comfortable level. Analysis of nearly 800 SMSF households’ retirement plans shows that the median “desired annual spend” is $72,000.
Accurium estimates that a total superannuation balance of $1.2 million would be needed to be confident of funding a $70,000 annual retirement income.
Twenty-one per cent of households set their desired annual spend at more than $100,000, which would require a balance of $2.1 million.
Accurium estimates that two-thirds of the households in its database could afford $60,000 of annual income in retirement, while 28 per cent could afford $100,000.
Accurium undertook its research jointly with the SMSF Association. Peter Hogan, the association’s head of technical, says the report highlights that most SMSF trustees are on track to meet their retirement goals, despite a difficult investment environment and low interest rates.
“It’s critical superannuation has a sustained period of stability free from significant changes to give trustees greater confidence in the system,” Hogan says.
According to ASFA’s June quarter Retirement Standard, Couples aged 65 need $60,063 a year for a “comfortable” lifestyle and singles $43,695, up 0.2 per cent on the previous quarter.
For a modest lifestyle, a couple needs $34,911 and a single needs $24,270, up 0.1 per cent.
The annual increase was 1.5 per cent for comfortable and 2.1 per cent for modest (reflecting the greater relative importance of the basics in the modest budgets). These increases compare to the 1.9 per cent increase in the CPI.
For the majority of retirees in industry and public offer super funds, retirement goals are more modest. Actuarial consulting group Milliman says the median super balance at retirement for those aged 60 to 64 is $100,000 for men and $28,000 for women.
Milliman’s quarterly Retirement Expectations and Spending Profiles report analyses the spending data of more than 300,000 retirees.
The Retirement ESP shows that Australian retirees aged 65 to 69 spend a median of $31,068 a year. This income comes from a variety of sources, including super, non-superannuation savings and government benefits.