Retirement Income Streams
Retirement Income Streams
What are retirement income streams?
When we retire we all have a common issue – how are we going to produce an income for the rest of our lives? The main thing we lose in retirement is the ability to earn wages and salaries.
Whether you’ve built up savings from superannuation, investment property, equity in your home, money in the bank, inheritance etc., you will need to turn this capital into an income stream which is convenient, secure and tax effective.
You may also have other objectives in retirement such as gaining the most out of Centrelink and the Age Pension or the Veterans’ Affairs Pension, in addition to estate planning issues.
For an ever-increasing number of people the answer lies in the form of income streams and, in particular, superannuation allocated pensions, term allocated pensions and other complying annuities.
Where do you go to get one?
Most life insurance companies and financial services organisations provide these different types of income stream products. You can approach these organisations directly, at which point they will usually direct you to one of their financial planning groups, or you can seek the advice of an independent financial planner. You should always seek professional advice. It is very dangerous to attempt to set yourself up with an income stream without professional consultation, particularly professional tax advice.
How do you set one up?
1. Decide on your retirement date or year.
2. Ensure you have a clear and defined set of goals and objectives.
(e.g. required income per year, investment objectives, access to capital, Centrelink etc).
3. Do your research! Most providers’ websites have additional information on their income streams.
4. Arrange an interview with a retirement specialist, preferably an independent one.
5. Work together to use your retirement savings to the best effect.
Remember, you do not need to review all possible income stream products in order to choose the one best suited to your circumstances. Pre-qualify your needs by checking the table [here] for those points which do or do not relate to your priorities.
Richard Sheargold
Table supplied by Louise Biti, Asteron.
For more information on Retirement Income from the FACS website,
click here
InvestSMART, a discount broker of allocated pension investments, have provided the following table which shows a number of the top performing funds based on 12 month’s performance.
If you wish to look at any of the funds in the table below you will be taken to InvestSMART’s website where you can research these products more, compare it with other investment options and most importantly request or download a Product Disclosure Statement (PDS).
Top Performing Retirement Funds
Managed Fund data is supplied by Morningstar Research and Standard & Poor’s Information Services and is subject to the following disclaimer.
Managed fund unit prices are indicative only.
Sourcing and comparing fixed term or Life Annuity style products from Life Insurance companies is not available online. Please call InvestSMART on 1300 880 160 for some comparable rates based on your timeframe. There is little doubt that by choosing wisely, a good retirement income stream will contribute to the basis for a comfortable lifestyle in retirement.
IMPORTANT DISCLAIMER : This information has been prepared for distribution over the internet and without taking into account the investment objectives, financial situation and particular needs of any particular person. Neither InvestSMART Financial Services Pty Ltd nor www.yourlifechoices.com.au make any recommendations as to the merits of any investment opportunity referred to on www.yourlifechoices.com.au or any related websites. All indications of performance returns are historical and can not be relied upon as an indicator for future performance.
© 2007 Morningstar Research Pty Ltd. All rights reserved. To the extent that the above constitutes general advice by Morningstar, this advice has been prepared by Morningstar Research Pty Ltd ABN: 83 062 096 342, AFSL: 243 161 and does not take account of your objectives, financial situation or needs. Before acting on any advice, you should consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. Please refer to Morningstar’s Financial Service Guide (FSG) for more information at www.morningstar.com.au/fsg.asp and consider the product disclosure statement before making a decision to acquire the financial product.
When can she retire?
YOURLifeChoices subscriber, Belinda, is concerned that working full time is having a detrimental effect on her mother’s health and would like to know if there are any concessions available to her.
Q. Belinda
My mother is 62 and is finding working full time extremely difficult, physically and mentally. She is working approx 45 - 50hrs a week in retail. She is currently earning under $ 50,000 and is a single woman with a mortgage and private health insurance. Is she entitled to any benefits and or senior discounts? She believes she has to continue working until she is 65. Is this correct? What is the fortnightly payment she may receive if and when she retires? How does her superannuation affect any pension payments?
A. As your mother is working full time, she is not eligible for any concession cards.
From what you have told me, your mother will be eligible for the Age Pension when she is 64.5 years of age. For more information on eligibility, click here.
In regards to what she will receive, a full single Age Pension is paid at the rate of $644.20 per fortnight, plus the Pension Supplement of $85.80 per fortnight. Whether she receives a full or part pension will depend on her income and assets. For more information on these limits, click here.
Any income derived from superannuation may affect her Age Pension if she is above the income threshold, which is currently $142 per fortnight for a single Age Pensioner.
Your mother should seek independent financial advice on how to structure her superannuation to minimise the affect it may have on her Age Pension.
At any time, she can make an appointment with a Centrelink Financial Information Services officer to discuss her individual circumstances. This service is free of charge and you do not need to be a current Centrelink customer. To make an appointment, call 132300.
YOURLifeChoices enewsletter, Rethink retirement, raised a few questions for subscribers. In the interest of open and honest information, YOURLifeChoices has addressed your comments.
Ross
I’ve just started reading your latest newsletter. Re the first example about Gary, not too many people have $450,000 in their super. You’ve got to make your examples more down to earth!
You lost me with that one.
A. Hi Ross, many thanks for getting back to us, we think you make a good point as Gary’s savings are much higher than the average nest egg. Bear with us and we will supply an example of an $80,000 super balance.
George
The page that comes up if you try to use the “MyRetirement simulator” on AMP website is confusing. If you hit the link on the email, they try to get you to talk to an advisor. Did you know that?
A. Dear George, thanks for this feedback – we have checked the AMP website and it seems to clearly delineate between general information and the function where you can contact an advisor, if you wish to go further. The site seems to offer a lot of general and useful information with no obligation to speak with anyone employed by AMP.
Victoria
Hi there, I am wondering how many average workers on retirement at the age of 65 this year would have the amount the gentleman in your story has. My husband has worked really hard all his life and paid into his super when we could afford to do so, which was not until our three children were grown, and on retirement we ended up with about $100000 between to separate super funds (because the last company he worked for wouldn’t allow him to roll the previous amount in to their fund). In the last 10 years of his working life he paid $200 a week into his super and we still didn’t end up with anything like this gentleman has. I only worked (part-time) after all my children were working themselves and I had a modest $20000 which we immediately paid off our house. How do people on the average wage get to accumulate this amount of super? It only came in half-way through our working life and I never cease to be amazed at the amounts people seem to have. We must have done something wrong although I am not sure what.
A. Dear Victoria, many thanks for such a detailed response.
No, you have not done anything wrong. On the contrary you have worked hard and saved all you can. We, however, have included an example of someone with a higher than average nest egg. Yours is not the only letter to highlight this problem. So we will seek an example of someone with a more realistic/average super balance – say $80,000 – and report back.
Making the most of the pension
Gary is 65 and has retired. He’s on the Age Pension. His wife, Fiona, is 59 and is on a Disability Support Pension. They’ve been married for 40 years, have four adult children and six grandkids aged under 10. Whilst they’re still active, they would like to enjoy their retirement and are looking forward to some travelling. Based on their current expenditure, they feel that $40,000 a year will be enough to have a comfortable retirement. They realise, however, that in order to sustain this level of income, they’ll need to be prudent and make their assets last as long as possible. They also want to know whether they can structure their assets in such a way so as to increase their social security benefits, to take some of the pressure off their own assets.
Proposed Strategy:
1. Structure assets to maximize retirement & social security
· Because Fiona is under Age Pension-age and younger than Gary, there is benefit in holding super in Fiona’s name as it will be assessed more favourably under the Centrelink Income and Assets test
· Withdraw $450,000 from Gary’s super
· Make a non-concessional contribution of $450,000 to Fiona’s super
· Transfer $290,000 from Gary’s super to an allocated pension to supplement the Age Pension
· Invest assets in line with risk profiles.
2. Emergency fund
· Retain existing cash funds in bank account to provide emergency cash reserve.
3. Review estate plan
· Contact solicitor or estate planning specialist to review wills
· Appoint enduring Powers of Attorney and discuss making binding death nominations.
Result
As a result of talking to a planner, over a five year period, Gary and Fiona were able to:
· Continue to meet their income requirements
· Increase their Centrelink entitlement by $16,700 a year
· Reduce their capital drawdowns by $18,000 a year, helping them make their money last longer.
Super strategies for singles
Loretta is 56, divorced and manages a large department store in Perth on a salary of $75,000 per annum. She has already started thinking about her retirement and would like to make sure that what she is doing now will benefit her later. She currently spends about $28,000 a year but, when she retires, she would like to also include an annual holiday for which she feels she will need at least $2,000 a year. One thing that is holding Loretta back is that she still has a $100,000 mortgage on her home. She pays approximately $12,000 a year off this mortgage, but would like to get rid of it as soon as possible.
Proposed Strategy:
1. Set up a Transition to Retirement strategy to help repay debt faster and build wealth for retirement
· Use a cash-out and re-contribution strategy by withdrawing up to taxable component tax-free threshold of $150,000 and re-contributing this back into super as a non-concessional contribution. This increases the taxfree component and, by doing so, increases the tax effectiveness of a Transition to Retirement strategy
· Commence a non-commutable allocated pension and invest in line with risk profile
· Draw the minimum level of income on a pro-rata basis from the underlying investments in the allocated pension to maximise the amount invested in the tax-free allocated pension environment and maintain the asset allocation in line with risk profile
· Make salary-sacrifice contributions into super, maximising the transitional concessional contribution limit until 30/6/2012
· Reduce salary sacrifice contributions 1/7/2012 to ensure Loretta remains within concessional contribution limit.
2. Emergency Fund
· Retain existing cash funds in bank account to provide emergency cash reserve.
3. Debt management
· Utilise surplus cashflow to increase monthly loan repayments to help pay mortgage down faster.
4. Review estate plan
· Speak to an estate planning specialist to review will and estate planning needs
· Appoint enduring Powers of Attorney.
Result
By following her planner’s “Transition to Retirement” (TtR) advice, Loretta will realise a significant boost to her savings. In the first five years it will help her to:
· Reduce her average tax rate from 23.35% to 1.66% in the first year
· Create an extra $56,800 in surplus cash to put on her debt
· Increase her superannuation by $70,500
This will help her fulfill her travel dreams when she ceases full time work.
Maximising return on investments
David is 61 years of age and lives in Malvern, an upper-middle class suburb in Melbourne, with his wife, Natalie, who is aged 58. They have been married for 35 years and their two adult children have moved out to set up their own lives. David is an executive at a pharmaceutical company and is on a salary of $100,000. He plans to completely retire in 12-months’ time. Natalie has not worked since they had children, although she enjoys doing charitable work two to three days a week. They both hope to travel around Australia when David retires next year and spend a lot of time with their grandchildren. They’re proud of their achievements in life so far, but would like some help in setting themselves up with the right plan for their retirement. They currently need $100,000 a year to meet their annual expenditure and do not see their lifestyle or expenses changing a great deal after David has retired. They have saved well – but how can they improve their position?
Proposed Strategy:
1. Super contributions
Make salary sacrifice contributions to maximise concessional contribution limits for David until he retires in one year.
2. Property sale
At retirement, sell investment property (2) with lower capital gain (value of $779,000 in Year Two) plus $221,000 of direct shares and utilize the net proceeds to make nonconcessional contributions to superannuation of $450,000 each plus concessional contributions of $50,000 each to reduce Capital Gains Tax (CGT) liability.
3. Commence allocated pension
Utilise the balance of superannuation funds to commence two allocated pensions, drawing sufficient income to supplement income from other investments.
4. Invest any surplus into managed funds
Reinvest surplus cashflow into a managed fund portfolio held in joint names.
NB: Current strategy assumption:Client uses balance of super funds at retirement in Year Two to commence an allocated pension, drawing sufficient income to supplement income from other investments. Surplus cashflow is retained in bank account.
Result
By following their planner’s advice, David and Natalie will realise a significant boost to their savings. This can be achieved over a five-year period by:
· Reducing their average tax rate from 6.09% to -2.01%
· Exceeding their target income of $100,000 a year
· Creating an extra $45,000 in net assets after 5 years
This has achieved their ambition to maximise their savings and maintain the income they require for their lifestyle.
How much is enough?
After considering the many ways you may wish to make the most of your ‘second life’ after full-time work, you should have a clearer vision about your future lifestyle needs. The next – critical – question is, How much money will you need to make it a reality?
How do you calculate future financial needs?
How much will it take to fund the lifestyle you want?
How much will you need in retirement?
According to calculations from the Investment and Financial Services Association (IFSA), most Australians will need approximately 65 per cent of their pre-retirement income to maintain their current lifestyle in retirement. If you have a large expense such as an overseas trip planned for your retirement, you may need even more. Based on this 65 per cent estimate, if you’re currently earning $70,000 a year, it’s estimated that you’ll need approximately $45,500 a year to maintain your current lifestyle in retirement.
How much super is enough?
This is a smart question to ask early on, because the fact is that most people don’t have enough to retire on. The most recent AMP Super Adequacy Index, Australia’s largest-ever statistical analysis of Australia’s retirement readiness, found that the average annual income required in retirement will be $41,992. On average, many people will face a shortfall in their superannuation and will need to partially rely on the Age Pension to fund their retirement.
Tips for increasing your super before retirement
If you’ve only got a few years until retirement, there are still things you can do to dramatically improve your situation. You can concentrate on maximising your super benefit now by: n Increasing the amount you are contributing n Consolidating your super if you have more than one plan n Reviewing the options in which your super is invested. You should also look at your investment options outside of super and see if they are in the most tax-effective environment.
How long will your money last?
And how long does it need to last?
Answering this question is easier said than done, but the following table should give you an idea. For example, if you’re planning to retire at age 65, the research suggests that you’re likely to live for approximately another 20 years. The average Australian woman at age 65 has a life expectancy of about 86 years and the figure for Australian men is about 83 years. This is based on 2006 Life Expectancy tables, (ABS Feb 2007).
According to research by IFSA, the Age Pension won’t be nearly enough to fund the lifestyle most of us would like when we stop working. But knowing how much super you will need is different for every person - as one size doesn’t fit all. Calculating how much you need to save for your retirement is critical if you want to maintain your current lifestyle and continue to reach new goals. Most of us need more than just a Centrelink Age Pension to maintain our standard of living.
A quick solution
AMP’s online MyRetirement simulator can help you work out how much you can spend each year. See how far your funds will stretch using the MyRetirement Simulator at www.amp.com.au. MyRetirement simulator is designed to give you a sense of how much you can spend in retirement and how long your funds may last (depending on when you retire, how much you draw out of your superannuation each year and how your funds are invested). It will also demonstrate why it’s important to have a retirement strategy and to make additional or a lump sum contribution to your superannuation balance. How much will you personally need? Use the budget planner to help work out how much you’ll need.
(Find a comprehensive online budget planner calculator at www.amp.com.au)
Hidden village fees
YOURLifeChoices subscriber, Margaret, is considering her retirement living options but needs some inside information about additional fees that may not be widely advertised.
Q. Margaret
I may be interested in ‘seniors living’ resorts but do not want to be bothered with the real estate agents. Is it possible for seniors to give a quick run down on the extra charges that I’ve heard bits about but no one ever mentions them in advertising.
A.
Margaret, extra charges can vary between states and territories and villages themselves, making it very difficult to give a clear breakdown of what additional costs may be involved. It is better to ask the people who know, that is, the people who live in the villages themselves.
Most states have a Retirement Village Residents Association that may be able to give advice on what to look out for in terms of extra charges when considering buying into a retirement village.
You can contact the individual associations by clicking on the links below.
Retirement Village Residents Association NSW
Association of Residents of Queensland Retirement Villages
Residents of Retirement Villages Victoria Inc: Ph (03) 9015 8042, email:
WA Retirement Complexes Resident Association
SA Retirement Villages Residents Association Inc: Ph (08) 8232 0422, email:
How much do you really need?
Recent research shows that the annual value of Age Pensions paid to those entitled to maximum benefits, only amounts to less than half of what a retired single needs to live a comfortable life.
The Association of Superannuation Funds of Australia (ASFA), together with Westpac, found that to have a comfortable lifestyle, retired singles who live in their own home need to spend $38,101 a year and couples $51,132. Keeping in mind that the maximum annual Age Pension for singles amounts to $19,197 (including the Pension Supplement) and $26,390 for couples, there is a huge shortfall between aspiration and reality.
The news isn’t any better for those single age pensioners who are simply looking for a modest lifestyle – they find themselves $489 short if living on an Age Pension. Budgets for various lifestyles are broken down as follows:
The Westpac ASFA Retirement Standard also provides a breakdown by state and territory of how much is needed to support a chosen lifestyle in these areas. For more details, visit the ASFA.
Will your money last?
As Australians are now on average living longer, superannuation needs to stretch even further to cover living expenses. Will your money last as long as you live?
You have a 50/50 chance of living as long as your life expectancy and in some cases, you may even exceed it. So how do you make sure you have enough money stashed away to last a lifetime?
The Australian Securities and Investment Commission (ASIC) has a useful guide that can assist you to estimate how long you will live, how much money you may need and how you can maximize your retirement planning to achieve your target.
As no-one has a reliable crystal ball, being prepared is the next best thing.
To find out if your money is likely to last as long as you do, visit fido.gov.au.
Changes to salary sacrificing rules
Last week, we advised YOURLifeChoices subscriber, Sue, of the new limits to salary sacrificing but she was concerned about how the Government would assses her gross income.
Q. Sue
If I make salary sacrifice contributions will the Government take that amount ‘off’ my gross income e.g. If I salary sacrifice $500 per fortnight that would bring my gross income down to $2000 per fortnight (before tax) which would bring us under the limit and my husband could retain his part pension. I am not sure if the Government will continue to let me do that?
A. Provided by Hank Jongen, General Manager, Centrelink
Currently, rules apply which mean salary sacrifices into superannuation if you are below Age Pension age are not counted under the income test. From 1 July 2009, if you are under Age Pension age, any income that you salary sacrifice into superannuation will be counted as gross income under the income test. This may impact on you or your partner’s eligibility for Centrelink payments.
The Financial Information Service can explain how the changes to Age Pension and earnings announced in the 2009/2010 Budget will affect you and your partner’s particular circumstances.
For more information or to make an appointment to speak with a Financial Information Services Officer, call Centrelink on 13 2300.
Keep super safe
The share market may be in turmoil and superannuation balances are dwindling but there are ways to minimise the damage.
The first thing to do is not panic, making rash financial decisions may only compound the issue. You should also be aware of your selected investment strategy – safe, aggressive or a balance of both. If you are exposed to more risk, you may wish to consider a more balanced approach. Consult an independent financial advisor and work out what is the best course of action for your individual situation. You can find details of accredited independent financial advisors by contacting the Financial Planning Association.
If you are about to start a pension, you may wish to consider a cash buffer in your pension. This may help see you through market volatility, such as we are currently experiencing, without having to draw on investments.
For those already living on pension income, you may actually be drawing down on capital; given that super pensions are currently being paid on 30 June 2007 balances. Depending on life expectancy and account balance, this could become a problem. Again, you should seek independent financial advice if you are worried about your pension arrangements.
For more information, contact the Financial Planning Association.
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Redundancy offers
It is important to consider redundancy offers carefully, Dixon Advisory’s John Bloggs, advised. Stress levels over job security remain high as uncertain economic conditions and rumours of further job losses continue.
Facing a redundancy earlier this decade was easier to manage as the chance of quickly finding a new job was high. However, with job vacancies at their lowest levels since 1975, employees should get advice as early as possible if they think a redundancy may be heading their way.
Large corporations and Government departments will often aim to make reductions to staff numbers through a programme of voluntary redundancies. These programmes allow employees to elect to leave and are seen as having a lower impact on staff morale compared to involuntary redundancy or retrenchment.
When an employee is made redundant, either voluntarily or involuntarily, legislation mandates the financial compensation that must be paid by the employer. The formal redundancy payment is generally made up of a payment in lieu of notice and a lump sum tied to years of service and salary. All outstanding Annual and Long Service leave entitlements should also be paid to the employee. Various options will apply to superannuation money depending on the type of fund to which the employee has been contributing.
Most people facing a redundancy are very concerned about what they should do with their severance payment and superannuation. While a lump sum payment can fund a change of career for some, many people need to rely on the severance payment as their only means of support until new employment is found.
While the changes to superannuation in the 2006 Budget were heralded to simplify superannuation, the tax rates applied to redundancy payments were also caught up in the reforms. In the minefield of loopholes that is superannuation legislation not all redundancy payments are treated equally.
Different rules apply to severance payments depending on the date the workplace agreement or employment legislation was written. This is one of the key reasons why it is so important to get advice. Anyone in this situation, or with family members facing redundancy, should seek independent advice as early as possible from a qualified and experienced advisor.
Many private and public sector employers will subsidise the cost of an appointment with Dixon Advisory to help employees facing redundancies make fully informed decisions regarding their financial future. For more information please contact Dixon Advisory on 1300 883 158 or email
Pension dilemma
Leith, an AboutSeniors subscriber, is confronted with the same dilemma that many older Australians are facing; how will they cope when they stop working?
Q. Leith
I hope you can give me advise on my financial problem, I am a 66-year-old (now single) female still working full-time. I had planned to retire at the end of 2010 or early 2011 when my next Long Service Leave is due, however I only have $60,000 in super, I will be eligible also for the full Pension Bonus Scheme which will be around $34,000. I have a mortgage of $120,000 on a townhouse worth $300,000 and have no other assets except an old car and usual household items.
I cannot see how I am going to manage on a pension and do not know whether I should pay a lump sum off my mortgage on retirement or keep paying my regular monthly payments (which are $700) until my funds run out and then what do I do?
Your reply will be greatly appreciated.
A. Provided by Darren Howard, Executive Financial Advisor, Dixon Advisory
I would suggest you need to lower your debt with Pension Bonus Scheme money. If the pension will not support your lifestyle expenses, other options are:
1) To work longer and build super up and/or
2) Sell home and clear debt. Deposit funds into your super
and use these funds to supplement pension. You should
find renting will allow for better standard of living, and
will improve cash flow.
There is no benefit to retaining debt, as this is just a dead weight interest cost. Also while continuing to work on, if you encounter the possibility of a redundancy you should consider taking it, as it will lead to more concessional tax treatment of leave entitlements, which can be used to further reduce debt attached to principal place of residence.
Tax-free allocated pension
A new product, which integrates a superannuation pension with a cash management account, will allow you to get direct access to your pension fund through a bank branch, ATM or online banking, and could save you paying tax.
ING and ANZ have combined to offer an ING pension product with an ANZ Cash management account, meaning you can manage your retirement savings in a single integrated product.
This is a first for the industry and means that you no longer need to keep your cash reserves in a separate, non-super account, with any interest earned subject to tax. In addition, it‘s always handy to have immediate access to cash if you need to cover unexpected costs. This new arrangement provides much flexibility in terms of where you choose to invest your hard-earned dollars. To find out more, click here
Stamp duty exemptions
The amount of stamp duty that needs to be paid when moving to a smaller home or retirement village later in life can often be a barrier to achieving your goal of a contented retirement.
Stamp duty exemptions are granted to first homebuyers and a Parliamentary Inquiry into housing affordability has provided evidence to support the same exemptions being granted to those downsizing from their primary residence. With the Inquiry finding that not only do older Australians still have debt as they reach retirement age, but that the level owed had increased, with mortgage holders owing more than $50,000 increasing to 61% and those owing more than $100,000 has risen massively from 12% to 38%.
With the Inquiry acknowledging that suitable housing is a major factor in the health and wellbeing of older Australians, making it easier for people to choose the right living option for them, and then being able to afford it, is key to supporting an ageing population.
For more information on the Parliamentary Inquiry, visit the
Australian Senate.
How much is enough to retire on?
One of the best functions of the internet is the calculator resource, you can pretty much find a calculator for any purpose. When starting to look at potential retirement income scenarios a useful calculator is one that helps to determine “how much will I need”.
With so many calculator options on offer, these are the ones YOURLifeChoices like best:
AMP
“My retirement simulator” How much super will you need? How long will your funds last?
https://onlineservices.amp.com.au/MyRetirementSimulation/showSimulator
BT Financial Group
Tools and resources – includes government co-contribution calculator
http://www.bt.com.au/investors/tools-and-resources/tools-and-resources.asp
The Centrelink website is a rich resource portal for those who believe social security will provide part of their income. In particular, the Financial Information Service is a great starting point
http://www.centrelink.gov.au/internet/internet.nsf/services/fis.htm
and the overview retirement planning page has links to an excellent retirement rates facts sheet
http://www.centrelink.gov.au/internet/internet.nsf/individuals/ret_index.htm
The National Information Centre on Retirement Investments (NICRI) is also government funded – and features an excellent “money map” utilising calculators to step you through ramifications of decisions to spend or save
http://moneymap.nicri.org.au/
Are you ready to retire quiz
Most Australians enjoy at least a little work in their life-work balance, but how much is enough – and have you done the planning that’s necessary before beginning your transition?
Use our quick 25-questions quiz to check the health of your retirement planning
The holistic approach is good not just for your health and wellbeing, but also when planning for your retirement.
You’re continually being told you need a secure retirement nest egg (say, $1 million). So you decide that, until you have this certain amount, you’re not ready to clock off. While there’s no doubt being financially secure is incredibly important, though, there’s much more to a happy and fulfilling later life than the money.
First and foremost is a sense of choice. Next is independence, with a readiness and willingness to move (rather than be pushed) to the next stage not far behind.
Research confirms that those who plan their transition into retirement are much more likely to create a satisfying life-balance. Sound financial planning is indeed an integral part of the process, but there’s much more to consider than just the dollars.
Take the quiz now!
Financial Planners and Accountants
The Financial Planning Association of Australia has an excellent “find a planner” tool on site allowing you to search by business name or suburb:
http://www.fpa.asn.au/FindaPlanner/
Find an accountant who is also a financial planner here
http://www.cpaaustralia.com.au/apps/finder/fp/showfind.aspx?CPSSessionID=SID-3F57FECA-E89DC129
Allocated annuity
Q. David
I want to cash in the remaining amount of my Allocated Annuity, how would that affect my pension?
A. Provided by Dante De Gori, Technical Manager - Business Support, ClearView Retirement Solutions & MBF Life Limited
The rule with Centrelink is that unless they are notified otherwise, any commutation (lump sum withdrawal) will be treated as additional income from their allocated annuity/pension and therefore affect the income test for the Age Pension.
If you notify Centrelink that it is a Lump Sum withdrawal then it will not be treated as income but rather the treatment will depending on what the client does with the money. For example if they place it into their bank account then the value of that bank account will be assessable under the assets test and then deemed under the income test.
Simpler retirement planning
For many people, retirement entails significant lifestyle and financial changes. Planning for it, however, can be a difficult and time-consuming process. To help you start, ClearView Retirement Solutions has created a range of free online financial tools.
These calculators help you understand how much you’ll need in retirement and to plan for the future in just a few minutes. Calculators range from a simple budget planner for determining your current cost of living, to a tool for estimating your superannuation entitlements at retirement.
Planning is an important part of good financial management. Taking steps to control your finances today could make a long-term difference to your savings and investments. But planning for retirement can seem daunting. These free online financial tools and calculators have been designed to assist you to better understand your present financial situation and plan for the future. In just a few minutes you could better understand your present financial situation and identify what to do next.
ClearView’s calculators include:
- Budget planner – This simple tool is useful for determining your current cost of living while helping you decide how much you can save.
- Income in retirement calculator – This tool helps you to estimate your income requirements during retirement. As a rough guide, you should target a retirement income of 50–70% of your pre-retirement salary. This is because many costs you would incur normally would no longer apply.
- Capital investment monitor – Want to know how much you’ll have to invest at retirement? This simple tool helps calculate your total wealth (such as superannuation payout, savings, and sales proceeds) less major expenditures such as renovations, motor vehicle purchases and overseas trips.
- Superannuation estimator – This calculator allows you to see how much your superannuation benefits may be worth at retirement and how much you could need to save to reach your desired level of income.
- Money longevity time line – This simple calculator provides a projection of how long your savings could last in retirement based upon your weekly income needs.
- Estate planner – A useful tool if you are near retirement. It helps you to determine how much money you can receive during retirement while providing for dependants or family.
- Salary sacrifice comparison – This calculator enables you to compare the difference between salary sacrifice versus post tax contributions into superannuation.
Taking steps to help control your finances today could make a long-term difference to your savings and investments. To start using the calculators, simply go to the ClearView website at www.clearview.com.au
Any advice in this material is general advice only and does not take into account your individual objectives, financial situation or needs. Before acting on it you should consider the appropriateness of it taking into account your personal circumstances.
More on Superannuation
Our Superannuation page has a lot more information.
ASIC’s Investments Test
The Australian Securities and Investments Commission (ASIC) has warned that many heavily advertised fixed interest investments should be thoroughly researched before consumers buy into them. ASIC’s three-point test can help you keep a cool head when the temptation of attractive returns is dangled before your eyes.
ASIC warns that many companies fail to disclose important information or make claims that are misleading. Asking the following three questions of any investment company could help clarify the true value of their offers and give you peace of mind.
- Who are you giving your money to?
Banks, building societies, credit unions, super funds and life insurance companies are the only institutions specially regulated to make sure that, under all reasonable circumstances, they can meet their financial promises. Otherwise, you’re taking an extra risk, like buying shares. And, if property is involved, your investments are not automatically ‘as safe as houses’. You alone have to judge the risk that the company you lend to may fail or default. - Is the interest rate higher than 8.5% per year?
If your expected return seems high, it adds extra risk. Your proposed investment may be more risky than a typical fixed interest investment. You may risk losing a significant amount of what you’re planning to invest, so it’s vital to check if you’ve got all the facts and if you can handle those risks. These must be spelled out in the product disclosure statement or the prospectus which the fund must give you. - Do you plan to put all your eggs in this basket?
Placing all your funds in one investment is extremely risky unless you’re putting the money into a deposit with a bank, building society, credit union, super fund or life insurance company. If things go wrong, your entire nest egg could be wiped out. Unless you can afford to lose all your money, spread your risk by spreading your investments.
FIDO offers lots of financial tips and advice on their website.
Go there
Choosing a Retirement Income Product
As you approach retirement, you need to decide how to use the super you’ve saved to help support yourself in retirement. Super funds and life insurance companies offer various types of financial products that let you draw down your superannuation savings in an orderly way to suit your lifestyle. This exercise can prove very complicated, so ASIC are offering an excellent overview of the products, issues and decision-making process on their FIDO website.
Visit the website to see an overview discussion which walks you through the basics of retirement income, including getting an age pension, having money for emergencies, avoiding unnecessary tax, and much more.
Go there
Income Streams - Finding the Best Product
Retirement income stream products are many and varied. It can be very confusing understanding the differences between the different products. And this can be critical to maximizing your Centrelink benefits. The Fido website has five excellent fact sheets on retirement income streams to help you choose the best product for your specific situation.
Retirement income streams - Fact Sheets
The Fido website has produced five fact sheets, available online as well as a downloadable (PDF) comparison table to help explain the different features of the five main income stream offerings:
- Allocated pensions and annuities
- Market-linked pensions and annuities
- Lifetime pensions and annuities
- Life expectancy pensions and annuities
- Fixed term pensions and annuities
The products are compared across the following points:
- What income do you receive?
- Can you withdraw? How long do payments last?
- Can you choose how the money is invested?
- Is this a complying income stream?
- What happens if you die?
Go there
Department of Family and Community Services
FaCS and the National Information Centre on Retirement Investments, Inc. (NICRI) have jointly written "Investing Money - Your Choices" to help you understand your options so you can get the best from your savings and investments both before and after you retire.
Go there
Complaints
If you need help to make a complaint about a financial institution please check the YOURLifeChoices Dispute Resolution and Advocacy page.
Go there
