Super funds required to help make your nest egg last

Superannuation funds will soon be required to present strategies to members to help them better plan for a comfortable retirement.

The superannuation system is designed to help Australians retire with funds to at least partially support their retirement. But what often happens is that people finish work with a significant sum of money in their super account, but then have little idea how to make the most of that nest egg.

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The government and financial regulators are now demanding that funds show more leadership and develop income strategies to help retirees enjoy as comfortable a lifestyle as possible.

From 1 July, superannuation funds will be required to publish a summary of all the retirement income strategies they offer to members.

The strategies must outline how they will help retired members, or those nearing retirement, to maximise their expected retirement income and manage any expected risks to their super balance.

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Funds are also expected to detail if they are developing new retirement income products. One that is regularly mentioned is annuities, which pay a guaranteed income for life and are adjusted for inflation.

Budgeting tools and forecasts about potential income in retirement could also be provided to their members while they are still in the accumulation phase.

David Knox, senior partner at asset management firm Mercer, told the Brisbane Times one group of retirees would benefit most from these changes.

Retired couples with at least $1 million in super and who own their home will most likely be able to fully fund their retirement.

Those who retire with between $200,000 and $300,000 in super will likely need to rely on the full Age Pension to fund their retirement.

But it’s people in the middle, with between $300,000 and $1 million in super who often find their funds running out later in life. It’s this group that the changes are aimed at helping.

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People in this group often have an above-average lifestyle which they wish to maintain, but without sufficient funds (even with the Age Pension factored in) to do so for decades.

A survey conducted by Challenger of 3000 Australians over the age of 45 has shown that almost half of people in this age bracket were concerned about running out of money in retirement, compared to just 30 per cent who weren’t worried at all. Only 40 per cent of respondents said they expect to live a comfortable life in retirement.

It seems the concerns are valid. Data from the Australian Taxation Office (ATO) shows that by age 70, only 37 per cent of people have any super left at all.

Of that fraction who do, the median balance at this age falls to between $100,000 and $149,000.

Requiring super funds to provide better strategies to make retirement income last will go a long way towards ensuring the continuing dignity of older Australians.

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Written by Brad Lockyer