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Are SMSF trustees still on track for their desired lifestyle in retirement?

Posted on Oct 18, 2017

Are SMSF trustees still on track for their desired lifestyle in retirement?

The increase in SMSF balances is good news for SMSF trustees, but the key question is – whether or not they are still on track to sustain their lifestyle in retirement. Over time the quality and cost of someone’s desired lifestyle increases as reflected in the ASFA budget standards, meaning that they need more over time to meet their desired lifestyle.

Another factor in being able to meet a desired lifestyle is the ability to generate returns in the future. This depends on market conditions and there has been an adjustment to the return scenarios in the modelling.

The investment scenarios reflect an increased probability of a ‘lower for longer’ situation where interest rates and equity returns remain low. This was reflected by the minutes of the Reserve Bank’s July policy meeting where they noted that neutral nominal cash rates are around 3.5%.

They note that this is around 1.5% lower than previous views on neutral interest rates. Other asset class returns are also lower in the projections than they were in previous years.

The upshot for the average SMSF trustee approaching retirement is that their improving balance has 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 p.a., as defined by ASFA. The proportion of 65-year-old.

SMSF couples able to afford this lifestyle has fallen from 70% to 66% over the year.

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. Given the market based investments held by the typical SMSF, it is to be expected that balances will experience ups and downs.

Despite the weaker returns in 2016, our analysis shows that SMSF trustees still have a good chance of sustaining the typical $70,000 a year lifestyle in retirement. For example, the median balance for a 65-year-old SMSF couple is still sufficient to sustain the SMSF Typical lifestyle of $70,000 a year with 80% confidence.

The SMSF Retirement Insights, “SMSFs treading water”, Volume 6, September 2017 was produced by Accurium for the SMSF Association. For more go to