Future looks rosy for Affluent Couple – or does it?

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Superannuation is the key to decreasing reliance on the Age Pension. The Superannuation Guarantee, introduced in 1992, means most older Australians who are either retired or closing in on retirement have super. Obviously, the length of employment and salary affects the size of the nest egg, but no matter how big or small, maximising the value of your super is paramount.

That’s why we presented three financial planners with three case studies – one for each of our retirement tribes. Their challenge was to make their case study’s super go further. Hopefully, their strategies can inform you.

Affluent tribe couple Jeff and Marion have a $420,000 super nest egg, but Emmett Wilkinson warns that without a retirement income strategy, the future looks challenging

Case study 1 – Affluent Couple

Jeff (68) and Marion (62) live in Perth.

They own a home valued at $1.2 million, with no mortgage.
They have an investment property worth $550,000 with a $50,000 mortgage.
They work part-time.

They have:
$420,000 in super (Jeff has $280,000 and Marion $140,000)
$50,000 in shares

Annual income NOW AFTER*
Rent $27,000 $27,000
Part-time work $7,000 $7,000
Super lump sum withdrawal $50,000 $40,000
Income from shares $1,500 $1,500
Age Pension (Jeff) $0 $10,060
TOTAL:  $85,500 $85,560

* Emmett Wilkinson’s preferred strategy, which maintains income but saves on super

Semi-retired couple Marion and Jeff* are members of YourLifeChoices’ Affluent tribe. The Retirement Affordability Index™ estimates that they need an annual income of $74,813 to meet expenses. While they have a current annual income of well over that, they will run out of super well short of their life expectancy.

One possible strategy that could improve the couple’s overall financial situation, and thus make their super go further, would be a Superannuation Recontribution Strategy. This is where Jeff could withdraw his superannuation and contribute the proceeds to Marion’s superannuation account.

As Jeff is over 65, he is able to access his superannuation without restriction and any withdrawals will be tax-free. Marion is able to make non-concessional (after tax) contributions of up to $100,000 per year, and because of her age, can take advantage of what is termed the ‘bring-forward’ rule, which is bringing forward two additional years’ worth of contributions. This means that in one year, Marion would be able to contribute, after tax, $300,000. Marion can do this because she is under 65 and has not utilised the ‘bring-forward’ rule in the previous three years.

This strategy could enable Jeff to qualify for an Age Pension of approximately $387 per fortnight ($10,060 per annum) and he would also be eligible for a Pensioner Concession Card. If the couple were to do nothing, Jeff and Marion would exceed the assets test threshold ($848,000) for home-owner couples (assets include their cars, contents, bank account, net investment property value, Jeff’s super and shares, which adds up to $870,000 meaning no Age Pension).

As you can see, Marion’s super is not included in the total. Her super is exempt from the assets and income tests as she is below pension age (which is 66.5 years for Marion) and is not taking a retirement income stream (e.g. account-based pension) from her super account.

They could continue to supplement their income by withdrawing a smaller lump sum to maintain the same lifestyle and see their super last longer. While Jeff can withdraw funds from his super without restriction, Marion would need to be classed as retired to access her super. 

As Marion is over 60, if she terminates her employment, she would trigger a condition of release – the technical term for being able to access her super. And again because she is over 60, no tax would be payable on withdrawals. Centrelink do not regard these withdrawals as income and if they are used to fund their expenses, then, in practice, there will be no asset test implications either.

Consideration could also be made to selling other assets prior to withdrawing funds from super. For example, if they were to sell a portion of their share portfolio, Jeff’s age pension entitlement would increase by approximately $1950 per year. This is because their assessable assets would have reduced.

Another consideration would be to sell the share portfolio to repay the debt on the investment property. As it is a relatively small mortgage, and considering their existing tax position, the mortgage isn’t providing any significant tax savings. Due to their age, Jeff and Marion would pay little to no personal income tax given their respective taxable incomes (remembering that withdrawals from super are not taxable).

Most couples in Jeff and Marion’s situation would have turned their superannuation accounts into retirement income streams. However, if they were to convert their super into retirement income streams Jeff would not be eligible for the Age Pension as the income stream would be treated as an asset and deemed for income testing purposes.

Using the superannuation recontribution strategy in this instance would result in additional age pension income of approximately $10,060 in year one (possibly $12,010 if shares were also sold) plus the concession card benefits. It is a clear winner.

The strategy could potentially provide the couple with up to $54,000 of extra income over the next four-and-a-half years until Marion turns 66.5 years, at which time their situation would need to be re-assessed. Looking for opportunities such as this is something a good financial planner should be able to help you with. 

Beyond this short-term strategy to increase Jeff’s age pension entitlement, the couple do face some longer-term issues. They are chewing through their super at a rapid rate and when Marion turns 66.5, whatever super they have will again be counted as an asset and trigger a reduction in age pension payments.

They also face a common situation for retirees in their category in that one of their most substantial assets is the investment property, which, while generating a good rental return (5 per cent per annum) is illiquid (i.e. hard to convert to cash).

I won’t be the first or last person (unfortunately) to pull out the old chestnut, ‘you can’t just sell off the bathroom’, but investment properties can present a challenge for couples needing to draw down on their capital in retirement. They would need to put some consideration into when and if they sell their investment property to provide additional capital.

The rules relating to the assets and income testing of annuities for age pension purposes are changing from 1 July 2019, and Jeff and Marion could consider this as part of their retirement strategy in the future.

*Jeff and Marion are not a real couple.

Disclaimer: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

Emmett Wilkinson is a Certified Financial Planner who specialises in providing advice on aged care and retirement planning at Advisersure Pty Ltd in Melbourne. He has worked as a financial planner for 20 years and previously worked for the Australian Taxation Office and the Reserve Bank of Australia. Advisersure Pty Ltd and Emmett Wilkinson are Authorised Representatives (424041/319614) of MyPlanner Professional Services Pty Ltd AFSL 425542.

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Written by emmettwi


Total Comments: 20
  1. 0

    How can Jeff possibly get a pension with an income of $27,000 pa?

    • 0

      A pensioner couple can earn $79’050 before losing all of their part pension according to the new 2018 limit figures. So Jeff as well as keeping the pension card he would get quite a bit of money as well. My understanding but then I could be wrong, and Mick might know more about it.

    • 0

      I don’t. Thanks for the clarification.

    • 0

      Jim – the asset threshold will get you before you can earn $79k

    • 0

      Not if you don’t have assets, Anonymous. That’s one area that is very wrong in the system. Someone with assets might only have an income of $25,000 and get nothing, but the fortunate who have an income stream that doesn’t flow from assets can earn a very high income and still get a pension. There are plenty who do.

  2. 0

    Jeff and Marion could look to take out a reverse mortgage as an income stream on their investment property.
    Let’s say they take an amount as an income stream which equals the growth, eg if growth is $15,000 per annum, take $1250 per month.

    For Centrelink perspective, the value of the loan offsets the asset value of the investment.

    Paul Dwyer
    Reverse Mortgage Finance Solutions

  3. 0

    They have a small mortgage on their investment property and if the banks have listed their family home as part of the security for the mortgage then centre link will call the family home a asset . Then they are asset rich, cash poor and will not qualify for the OAP You can never trust the banks, you have to do your own homework

  4. 0

    Mick you could ask O.G. but he may be in shock.

    • 0

      I doubt it floss as I think he wants Labor to win the next election and stuff the economy so he can buy some real bargains and make even more money. Didn’t he say he was cashed up?

      Also the Wentworth election has turned into a cliff hanger with even Antony Green worried about getting egg on his face.


      There is also some problem with irregularities in the pretence votes as well.

    • 0

      The Liberals may win and get stuck with the consequences of all the bad things they have set up. I certainly hope so. What a lark to watch Morrison try to explain a full blown recession and banking crisis and why deposits have all been bailed in on their watch.

    • 0

      Bowen wouldn’t have a hope of explaining that at all.

    • 0

      Hope he doesn’t have to OG. The Liberals need to face up to the mess they have made. So do their voters.

  5. 0

    The main disadvantage of real estate investments is that financial advisers (sic) can’t rip hidden fees from them.

    When they see real estate agents managing them for a fee they get even more wild and envious.

    The main takeaway from the figures given in these three examples is that the “affluent’ couple are no better off then the middle one (who get a full age pension and top it up) what they earned beyond that amount was a complete waste of time and they will be forced to spend it in order to even keep pace with those who get a full pension (ie paid for out of the taxes the so-called affluent already paid).

    They only get ahead by drawing down capital and spending it on day-to-day lving. Obviously that can’t go on for very long.

    To call them affluent is nonsense – affluent needs a pension pot of $1m at the absolute minimum.

    • 0

      Affluent to me is at least $2 million in this market.

    • 0

      VCBB – depending how old you are, $1 million most probably would do it. Took my little note book out from the time I arrived here in Australia and I realise that if I lived another 40 years even $5 million would not be enough.
      Glass of 7oz beer 14c
      newspaper 5c
      pack of fags 35c
      overnight in youth hostel 50c
      petrol 35c a gallon (4.5 litres)
      house on block of land (2bd, 2 br, garage, etc) $29’000
      my wage, night shift, trade $92.50 a week

      Makes me wonder what happened the dollar – highest note was $20 and you hardly came across them.

    • 0

      Adbob, you are absolutely right, but a couple probably needs close to $1 million each if they have 30 years of retirement ahead of them. Depends on how much investment knowledge they have, of course. Some achieve high returns and are fine with $1 million. Others are really struggling, and of course it’s the less privileged who will have the hardest time investing profitably.

    • 0

      Exactly so Cowboy. I worked out my income in purchasing terms was highest ever in 1974.

      It’s been going backwards ever since as inflation eats away at it.

      Back then you could buy a nice new ute for around 600 hours of work but now it’s up to 15000 hours. Workers and savers have been done over.

      Let’s remember though that the Liberal Government was in power for most of that time. Exactly why they hate us so much has never been explained.

      Guess it’s because the Liberals work for the Ginas and don’t care much about anyone who hasn’t a billion or so.

  6. 0

    Wouldn’t the investment property cause issues around asset limits. Owning Property other than your home is not great idea as the rents often don’t match what you’d get from a Government Pension.



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