Considering client longevity when working on SMSF cash-flow planning for trustees is hugely important and cannot be overlooked by advisers, a technical expert has said.
Accurium SMSF technical services manager Melanie Dunn urged advisers to give longevity risk the same consideration as market returns and inflation when assessing the uncertainty around future SMSF cash flow for clients in retirement.
“When we are thinking about uncertainty in retirement, our main focus is often on the uncertainty around market returns and inflation, but we also need to understand the impact and the uncertainty around longevity risk,” Dunn said today during an Accurium webinar.
“We need to look at success measures that focus on the likelihood of achieving goals in light of the key risk and uncertainty that retirees face.
“It can be hard to include a discussion about uncertainty, including longevity, when we’re talking about cash flow and retirement planning, but it is important.”
She pointed out advisers assisting clients with their SMSF investment strategy, estate planning, cash-flow decisions and aged care needed to ensure they included a discussion about longevity as it would drive the time horizons over which cash-flow planning needed to be considered.
“It can be hard to talk about death and I would suggest giving yourself some time to get any modelling done and attain a solid understanding of your client’s likely lifespan and the implications in achieving your client’s goals before you have any meetings,” she added.
“You may have already run some forecasts or have recommendations as you look for opportunities to articulate why you’ve used a particular time horizon in light of the risks your clients are willing to accept.
“Life expectancies change over time so as your clients age, allowing for longevity risk is a great way to help your clients understand the importance of coming back to you to review retirement strategies.”
In November last year, Dunn said SMSF advisers should steer clear of using deterministic models when assisting clients with retirement planning and managing risk.
In August, she said data from the Australian Government Actuary based on the last completed census indicated longevity risk was playing a greater part in retirement planning, emphasising the need for sound analysis before the use of these figures by advisers.
