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SMSFs asked, are you a grower or preserver?

Big piggy banks, small piggy banks

Understanding whether retirees want to grow, preserve or spend their wealth is key in developing effective retirement income plans, an SMSF specialist has said.

Accurium has called on Australians to reconsider how they think about retirement and the spending and savings needs that come with it. In its latest report, it said retirees and pre-retirees could do so by considering whether they fell into grower, spender or preserver income categories.

Accurium general manager Doug McBirnie said, “This is a new way of thinking about retirement income for SMSFs. As people retire, the key question changes from ‘Have I saved enough?’ to ‘How much can I spend from these savings?’

“Many SMSF retirees adopt similar financial strategies when it comes to spending but this report highlights that retirees should think differently.

“The amount they can spend and the appropriate retirement strategy depends on where they sit in the GPS Framework. The financial risks faced are different in each segment and using the GPS Framework provides a guide for retirees when it comes to setting their retirement income strategy.”

According to the firm, 25 per cent of typical SMSF retiree couples are growers, as they will boost their savings in retirement. The 28 per cent who are preservers will manage to retain most of their savings’ value, while the 20 per cent who are spenders will spend most of their savings over retirement.

However, there are 26 per cent who stand to run out of savings should they not alter their behaviour.

That’s at the SMSF typical spending level of $80,000 per annum.

However, if retirees have a spending level of $60,000, defined by the Association of Super Funds Australia (ASFA) as comfortable, then the number of growers increases to 38 per cent, preservers to 35 per cent and spenders drop to 18 per cent, while those set to run out drops to 9 per cent.

Should SMSFs plan to spend $100,000 per annum in retirement, 39 per cent fall into the run out category, 25 per cent into preserve and 18 per cent into spend and grow apiece.

With these categories in mind, Accurium said, “A simple bucket approach could be appropriate for the limited risks faced by growers; a more detailed cash flow 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.”

SMSFs asked, are you a grower or preserver?
Big piggy banks, small piggy banks
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