SMSF Retirement Insights Volume 7: A new way of thinking about retirement income | Accurium

SMSF Retirement Insights2

Executive summary

The government has been consulting on how large APRA regulated superannuation funds can improve retirement income outcomes for members in retirement. SMSFs are not going to be part of these new requirements but to make sure that SMSF members don’t miss out on some of this new thinking, this paper presents a framework for segmenting and addressing the retirement income needs of SMSF clients.

This paper will consider:
  • A framework for segmenting SMSF households at retirement when thinking about income stream strategies
  • What this segmentation implies for the different needs of SMSFs in the retirement phase
  • How many SMSF households are in their correct wealth and spending segment
  • Retirement income product strategies that might be appropriate for SMSF households in different segments

Developing a retirement income strategy for your varied SMSF clients can quickly become complicated. Different clients have varying objectives for their retirement and while everyone wants to enjoy a comfortable lifestyle in retirement, the definition of comfortable can vary.

Accurium has developed a retirement income framework to help SMSF retirees set the direction for their retirement spending. The GPS Framework will enable the retiree to Grow, Preserve or Spend their retirement savings depending on their goal.

About 25% of typical SMSF retiree couples can be categorised as Growers, who will increase savings in retirement, 28% are Preservers who will retain the majority of the value of their savings, and at least 20% are Spenders who will spend most of their savings across their retirement. There is an additional 26% who are at risk of running out of savings during retirement and might need to spend less so that their money lasts as long as they do.

Most retirees will have a clear answer to the question: “Do I want to Grow, Preserve or Spend my retirement savings?” The GPS Framework can align a retiree’s spending and investment strategy with that goal.

SMSF retirees should consider appropriate strategies for where they sit in the GPS Framework. A simple bucket approach could be appropriate for the limited risks faced by Growers; a more detailed cashflow strategy might be needed for the Preserver who is more exposed to market timing risks, while Spenders need to manage longevity risk more than other retirees and should consider the benefits of the income layering approach that can manage the key risks in retirement for them.