How some forward planning can boost your retirement income.
In a simplified world you work for 45 years, accumulate super, retire, start a pension and apply to Centrelink for benefits (if you can).
But one extra step can make all the difference in your how you live your retirement. If we “Get Advice” before we retire we then open up real planning opportunities that can assist us from day 1 of retirement.
One such opportunity is around Age Pension entitlements.
Centrelink will determine your age pension entitlement based upon the outcome of an asset test and an income test. You will receive the lesser amount from the two tests.
For those who are eligible for part pension or just miss out on the Age Pension, changing the type of income stream you take out can affect your Age Pension outcomes.
“Changing the type of income stream you take out can affect your Age Pension outcomes. “
Annuities
An annuity is an investment whereby you invest a lump sum of money in return for an income for a fixed term or for life. You can use normal or superannuation money to purchase.
The main aspect that people like about annuities is that the income is fixed for the life of the investment, so it provides a level of certainty in retirement. When purchased with superannuation money, it is also tax free in retirement. The extra benefit is that for Centrelink purposes it is only part of the assets and part of the income is assessed.
Generally, a lifetime annuity purchased from 1 July 2019 will be assessed by Centrelink as (1):
Asset Test: 60% of the purchase price, dropping to 30% at your 84th birthday (2)
Income Test: 60% of your gross payments as income.
Now with anything, there are trade-offs. With the favourable Centrelink assessments comes the inflexibility of annuities. They are purchased for life term, however should your circumstances change you can choose to cancel the annuity and receive a lump sum withdrawal of the amount remaining in some instances. Any access is usually met with some sort of financial penalty.
Much like a fixed and variable home loan, the best strategy for you may not be 100% account based pension or 100% annuity. The best outcome may lie in a mixture of both. Retaining some flexibility while accessing as much of the age pension as you can.
By incorporating different types of income streams in your retirement could result in a better financial position for you. Which would be best for you? 50/50? What trade-offs are you willing to take?
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- https://www.servicesaustralia.gov.au/individuals/topics/income-streams/27671
- Or a minimum of 5 years from the assessment date.
The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. Louella Jorge is an Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429. This editorial does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information, you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser before you act.
