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SMSFs must plan for age 100

SMSFs may need to adopt a longer planning horizon to safeguard their retirement as a new report from actuarial firm Accurium has shown SMSF trustees are expected to live longer than the average Australian.

The “SMSF Retirement Insights: SMSF Trustees – healthier, wealthier and living longer” paper, released recently, found life expectancy for a 65-year-old female SMSF trustee was 91.8 years, which was 2.7 years longer than the average, while a male trustee was likely to live to 90.2 years, which was 3.5 years more than the average.

The study said health and lifestyle factors contributed to longer life expectancy and found one in 10 female SMSF trustees was expected to live to 99 and one in 10 males was expected to live to 98.

For an SMSF couple planning their retirement from age 65 and aiming to allow for the lifespan of the longest-surviving spouse, the figures were even higher, it said.

“Many SMSF trustees planning their retirement will be doing so as a couple and will want enough assets to allow for the lifespan of the longest-surviving spouse,” Accurium chief executive Tracy Williams said.

“There is a greater chance that one person in a couple will survive to a high age than there is of a single person surviving to that age.

“A healthy 65-year-old SMSF couple wanting a high probability of not running out of money in retirement should use a planning horizon of age 100.”

The price of long lifespans was a high cost of retirement and required trade-offs between how much an SMSF couple spent each year in retirement and how much risk they were willing to accept around outliving their capital, the report said.

Accurium estimated a 65-year-old couple who wanted to spend $70,000 each year and were willing to accept an 80 per cent probability of a successful outcome would need $1.3 million as an SMSF starting balance.

Those who wanted to spend $100,000 a year would need a starting balance at 65 of $2.1 million.

But to achieve 95 per cent certainty that they would not outlive their capital, that same couple would need $2.5 million if they wished to spend $100,000 a year, the report said.

The research analysed over 65,000 SMSFs.

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