SMSF retirees should consider whether their goal is to grow, preserve or spend their savings over retirement to best determine their financial strategy, according to Accurium.
Accurium’s “A new way of thinking about retirement income” report, released today, contains a GPS (grow, preserve, spend) framework to help SMSF retirees set their retirement income strategy.
Accurium general manager Doug McBirnie said while many SMSF retirees implemented similar financial strategies when it came to spending, the report showed the amount they could spend and the appropriate retirement strategy depended on where they sat in the GPS framework.
“This is a new way of thinking about retirement income for SMSFs. As people retire the key question changes from ‘Have I saved enough?’ to ‘How much can I spend from these savings?’” McBirnie said.
“The financial risks faced are different in each segment and using the GPS framework provides a guide for retirees when it comes to setting their retirement income strategy.”
Accurium’s research showed 38 per cent of SMSF members who retired with enough savings to meet the Association of Superannuation Funds of Australia’s comfortable target of $60,000 a year fitted into the grow category, while 35 per cent slotted into the preserve category.
One-quarter of typical SMSFs with $80,000 a year fitted into the grower category, while a significant 26 per cent believed they would run out of savings.
The report suggested a simple bucket approach to generating retirement income for the limited risk faced by growers, but noted a more detailed cash-flow strategy might be needed for preservers who would be more exposed to market timing risks.
Spenders would need to focus more on managing the risk of outliving their savings and should consider an income-layering approach to ensure they had enough cash flow to meet their needs.
“The genesis of it really was that it started with the Financial System Inquiry, which recommended looking at the policy settings for retirement income,” McBirnie told selfmanagedsuper.
“SMSFs won’t be included in that is the current thinking, so that got us thinking: can we come up with a framework or some strategies and some ideas to help SMSF retirees to meet their goals?”
The Accurium modelling found retirees would need around $1.1 million in capital to be able to spend $80,000 a year and had a 50 per cent chance of outliving their savings if they used all of their capital.
Those who wanted to spend $80,000 and grow simultaneously would need more than $2.8 million, McBirnie said.