SMSF trustees could live longer than other retirees
SMSF trustees are likely to live considerably longer in retirement than the average life expectancy, meaning it’s important for advisers to consider different retirement planning options for their SMSF clients depending on the level of longevity risk they are willing to take, according to Accurium.
Speaking in a webinar on Monday, the actuarial certificate provider’s head of technical services, Melanie Dunn, said based on data from Accurium’s 65,000 SMSF clients, death rates among SMSF trustees aged 55 to 75 were significantly lower than those of the general population.
“We wanted to examine whether SMSF trustees belong to a subset of the population that has a different life expectancy to average, because the general attributes of SMSF trustees is that they are wealthier and better educated,” Ms Dunn said.
"The majority of trustees in our database were aged 55 to 75. Our analysis found that for this cohort there were only 32 per cent of the number of deaths we would have expected based on population mortality rates."
The firm also looked at research from the UK which showed a strong correlation between higher levels of wealth and higher life expectancy for those aged above 75 too.
“In essence, wealth provides a better lifestyle and better access to care, but the wealthy are not able to cheat death forever, and by their mid 90s, they are experiencing the same mortality rates as average,” Ms Dunn said.
Ms Dunn said the data showed it was less likely SMSF trustees would die earlier in retirement, which meant if they relied on the current Australian population life expectancy of 85, there was a high probability they would outlive their savings.
“This [life expectancy] estimate isn’t very useful, so if we provided advice based on needing our money to last the standard life expectancy, we might have grossly underestimated the age in which our client will live,” she said.
“We find over 50 per cent of people are expected to live beyond their life expectancy, so the question is, would your clients be happy to have a greater than 50 per cent chance of running out of money before they die? That’s what we are planning for when we use average life expectancy.”
Ms Dunn said it was important for advisers to obtain tailored modelling for their SMSF clients to illustrate longevity risk, and explain the different annual expenditure options available for them in retirement depending on how confident they wanted to be that they would not outlive their savings.
“It can be hard to include longevity in discussions with SMSF trustees because not many people like to talk about when they might die, but it is important to think about if you are providing advice in things like aged care, estate planning and the age pension,” she said.
“Give yourself some time to get the numbers done with clients before your meeting and understand how longevity risk fits into the conversation you’ll be discussing. Look for opportunities to discuss why you’ve used a particular time horizon in line with the risks your clients are willing to accept.”
