Retirement Income Options

What are retirement income streams?
When we retire we share a common concern – 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, or an inheritance, 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 on this page for those points which do or do not relate to your priorities.

For more information on Retirement Income from the FACS website.

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.

1. 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, such as 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.
2. 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.
3. 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.

For more financial tips and advice, visit www.moneysmart.gov.au

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 SmartMoney 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.

For more information visit www.moneysmart.gov.au

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.

For more information visit www.facs.gov.au

Retirement calculators

Some of the best tools on the internet are calculators.  When starting to look at potential retirement income scenarios a useful calculator is one which helps you 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 and the overview retirement planning page has links to an excellent retirement rates facts sheet

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/

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