Lower for longer investment returns leave SMSFs further from goals

The lower for longer investment outlook is leaving SMSF members further from reaching their retirement goals.

Lower investment returns has increased the amount needed for a comfortable retirement, according to new research released by the SMSF Association and Accurium. For a couple aged 65 the amount needed has increased by 17%, from $702,000 to $824,000.

Though 66% of SMSF trustees can remain confident – with 80% probability – that they are well placed to live comfortable in retirement, on $60,063 a year. 50% of SMSF trustees can be confident of reaching $70,000 a year, with 39% able to be very confident – 95% probability – of reaching this level.

However the report, SMSFs Treading Water, indicates that the median desired level of spending in retirement for an SMSF couple is $78,800, up from $75,000 a year earlier. 24% of SMSF couples aim to spend $100,000 a year in retirement, but only 28% can be confident, and 20% very confident, of reaching this level of spending.

Accurium’s General Manager, Douglas McBirnie, said that while the average SMSF was seeing its balance increase this wasn’t keeping up with the higher cost of paying for the desired retirement lifestyle.

“This is largely due to an increased probability of a ‘lower for longer’ situation where interest rates and equity returns remain low. This was reflected by the Reserve Bank noting in July that the neutral nominal cash rate, a key indicator, is now 3.5% rather than 5% previously,” he said.

“Even so, SMSF households are still better placed than most sectors of the community to meet their financial goals in retirement.”

SMSF Association Head of Technical Peter Hogan said that most SMSF trustees were still on track to meet their goals, despite low interest rates and a difficult investment environment.

“But for trustees and their specialist advisors, these are challenging times, especially on the investment front. From our perspective, this is why it’s critical superannuation has a sustained period of stability free from significant changes to give trustees greater confidence in the system,” he said.

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