Understanding the role life expectancy plays is important in advice.

Understanding how long our SMSF members might live is important when advising them on how to manage their super in retirement and into old age.

That was a key theme of a paper delivered at the SMSF Professionals’ Association of Australia (SPAA) 10^th conference in Brisbane by Peter Crump, Executive Director, ipac SA, and Meg Heffron of Heffron SMSF Solutions.

Their paper, “Pensions – self managing your deferred annuity“, looked at the new risks for SMSFs that are inherent in people living longer, with a focus on how it can be managed in a self managed super fund.

Crump and Heffron told the delegates: “Taking the risk of living well past life expectancy – what we call longevity risk – into account will 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 there were a number of ways of keeping track of how much you have for this advanced age, including keeping separate member accounts in the fund, or just paper records.

“There are simple processes available for accounting for the ‘longevity account’ in a SMSF, and, if people decide to use external solutions they must realise they come with risks.”

“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 age pension mode. Certainly the role of trustee education is this area should be under-estimated; how much do I need if I live well beyond life expectancy and how well.

“The other obvious benefit is that this places less strain in the public retirement system,” Crump and Heffron said.

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