SMSF Retirement Insights Volume 4: Pension strategies for SMSF retirees | Accurium

SMSF Retirement Insights2

Executive summary

Retirement planning is all about cash flow

Retirement planning involves many considerations, such as how to generate sustainable and lifelong cash flows.

As nearly 13,000 self-managed superannuation funds (SMSFs) move into pension phase every year there will be greater emphasis from the industry, policymakers and clients on how best to convert retirement savings into sustainable income streams.

Being able to have confidence in meeting desired lifetime spending needs is, after all, the reason many trustees choose to establish and manage their own SMSF.

However, retirement is different and planning for it requires investment expertise, technical knowledge and appropriate modelling.
It presents an opportunity for SMSF practitioners to provide the tools and expertise to help their SMSF clients make good retirement decisions.
In many cases, it’s all about cashflow planning. This paper explores three well-known strategies around income generation including: the safe withdrawal rate, bucketing and income layering.

It’s important to keep in mind that there is no silver bullet or one size fits all strategy. In fact the appropriate strategy is unique to each client and may involve a blend of strategies.

Key findings

  • The safe withdrawal rate strategy is popular with retirees in the US and other jurisdictions who often refer to the ‘4% rule’, that is you can comfortably withdraw 4% a year to fund income needs for life. However, Australia’s means tested Age Pension provides uneven cashflows for most SMSF retirees as they age and therefore invalidates the use of a simple rule of thumb for all but the very wealthy. A more holistic approach is to consider the total mix of income sources, rather than focus on a ‘safe’ withdrawal rate. The percentage of assets that retirees can afford to spend each year depends on their level of wealth.
  • An income bucketing approach secures a level of cashflow over an initial period allowing a greater allocation to growth assets for the remainder of the portfolio. Our research shows that this can increase SMSF balances for typical SMSF retirees after 10 years across a wide range of scenarios compared to a balanced portfolio.
  • A safety first, or income layering, approach locks in a retiree’s essential spending needs for life with secure income sources like lifetime annuities. Discretionary spending is then met with structures that can provide allocation to growth assets.
  • Our research shows that the Age Pension means tests can add to the complexity of retirement planning, so it’s all the more important for SMSF trustees, particularly with higher wealth, to seek advice.


This information is provided by Accurium Pty Limited ABN 13 009 492 219 (Accurium). It is factual information only and is not intended to be financial product advice, legal advice or tax advice, and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances. The information is provided in good faith and derived from sources believed to be accurate and current at the date of publication. While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Accurium is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. We recommend that you seek appropriate professional advice before making any financial decisions.