Longer life expectancy and SMSFs

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Longer life expectancies would normally be seen as a positive, but what impact could this have on SMSF?

It was a key theme of a paper delivered at the tenth conference held by SMSF Professionals’ Association of Australia (SPAA) in Brisbane last week.

Called ‘Pensions – self-managing your deferred annuity’, the paper looked at the new risks that SMSF could face if people live longer than their life expectancy.

Peter Crump, executive director of ipac SA, and Meg Heffron, of Heffron SMSF Solutions, told delegates that advisers must prepare for this.

“It’s an important conversation for SMSF specialists to have with their clients to ensure they take control of their retirement, and maintain a good lifestyle without lapsing into old age pension mode,” they said. “Certainly the role of trustee education in this area should be under-estimated; how much do I need if I live well beyond life expectancy and how well?”

This risk, called longevity risk, needs to be taken into account to help understand how much money is needed in retirement.

“Keeping track of how much money needs to be set aside for advanced age (typically assumed to be aged 85 plus) needs some simple calculations based on retirement factors,” they said.

It will also be important in alleviating strain from the public retirement system.
 
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