$1.6m cap unlikely to drag retiree living standard

The Federal Budget's $1.6 million lifetime superannuation cap proposal is unlikely to drag down the standard of living for most retirees, Milliman believes.

According to a Milliman analysis, there is almost a 94 per cent probability that $1.6 million would be enough to sustain a $50,000 annual income for a 65-year-old male retiree until a life expectancy of 87.

Milliman said the probability declines slightly for a 65-year-old female retiree because her predicted life span is slightly longer at 89.

The analysis noted that a longer lifespan lowered the probability that a $50,000 annual income would last until age 95 to an 80 per cent probability, although the Association of Superannuation Funds of Australia (ASFA) estimated that older retirees needed about 10 per cent less than younger retirees to fund a comfortable standard of living.

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"This is still a positive result. In fact, a $70,000 annual income is still likely to be sustainable (i.e., better than a 50:50 chance of lasting to age 95)," Milliman said.

"While these calculations show that the new cap is unlikely to drag down the standard of living for most retirees."

Milliman said investors could pull a range of levers (beyond expenditure) to change the probabilities and improve their retirement lifestyle.

"These include more sophisticated investment strategies such as specific management of sequencing risk and longevity protection," the analysis said.

While retirees will need to assess their positions after the raft of changes announced in the federal budget, the $1.6 million cap is unlikely to derail their retirement plans alone."