10th Jan 2019
Retirees warned to prepare for new assets test
New retiree assets test this year

Last year, we experienced considerable volatility in the stock market, with the All Ordinaries Accumulation Index – which takes into account both price movements and dividends – down two per cent for the 12 months.

This decline eventuated even after factoring in the running yield of around 4.5 per cent.

It’s a reminder that it’s normal for the share market to give us four negative years out of every 10, which means we can still look forward to six positive years every decade.

As always, my advice is to hang in there for the long term.

There is a federal election due by May, and if we can believe the bookmakers, the Labor Party is going to win. If it does, and its legislation to prevent a refund of franking credits is passed, it will be important for self-funded retirees to adjust their portfolios to make up for the yield that will be lost if excess franking credits are no longer available.

There is no need to panic – any changes are many months away, which gives us plenty of time to recommend strategies to defeat the tax grab.

Many retirees spend far too conservatively after they retire because they have no idea of how long they’re going to live. This is why I urge you to go to the website www.mylongevity.com.au and complete the short online questionnaire that will give a good estimate of the number of years you are likely to have left.

Of course, the results are not guaranteed, but the questionnaire is well researched and if nothing else is a great tool for discussion. The results could be especially useful if it appears that one partner will live many more years than the other.

Keep in mind that the Centrelink treatment of lifetime income products is changing dramatically from 1 July this year. The official term is “asset-tested income stream (lifetime)”. If you take out one of these products after 1 July, only 60 per cent of the purchase price will be assessed for the assets test up to age 84 (or for a minimum of five years) and 30 per cent thereafter.

Consider this case study: A couple aged 70 has $800,000 in assessable assets and receives a tiny Age Pension. If they used $200,000 to buy a lifetime income product, their assessable assets would reduce by $80,000 and their pension would increase by $6240 a year.

Challenger advises me that this $200,000 could provide an indexed lifetime guaranteed annuity for him of $6196 a year and for her of $5882 a year. The combination of the increased Age Pension and the income from the two annuities would give them a guaranteed income of $18,318 in the first year. That could make a huge difference to their financial situation.

The reduction in assessable assets could also give them a valuable safety buffer if Labor’s proposal to abolish the refund of franking credits to non-pensioners becomes law. This is because a portfolio generating franked dividends could increase in value and make them ineligible for the Age Pension.

At this stage, only full or part-pensioners are exempt from Labor’s proposal.

This is the perfect time to review your wills and also ensure you have given one or more trusted persons enduring powers of attorney.

As well, you should have prepared an advance health directive if appropriate. It’s most important that your family know the location of these documents because often circumstances arise where they are needed urgently.

And keep in mind the ‘death tax’ of 15 per cent plus Medicare levy that is calculated on the taxable component of your superannuation left to a non-dependant. The best way to legally avoid this tax is to ensure your attorney has instructions to withdraw all your superannuation tax-free and place it in the bank if it is obvious that death is imminent.

Most retirees tend to leave their assets to the surviving partner, but this can cause serious problems if that person is an age pensioner. This is because the asset test cut-off for a couple is $848,000 but for a single it’s $564,000.

Think about a couple with assessable assets of $830,000, which include a large share portfolio paying franked dividends. If one of them died, and the assets were left to the survivor, the survivor would find him or herself way over the cut-off point for the asset test, and lose the Age Pension and franking credits, as well as their beloved partner.

Do you have a question you’d like Noel to tackle? Email us at newsletters@yourlifechoices.com.au

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature, and readers should seek their own professional advice before making any financial decisions.

To make the most of your money in retirement, first you need to know the rules. The RetirePlanner™ tool has all the information you need.



    To make a comment, please register or login
    Old Man
    10th Jan 2019
    Whilst this article is helpful, it goes a long way from what most retirees need to know as each of us has a different situation. What we do, and I don't believe that our position is the norm, is to check with our financial adviser each year to keep up-to-date with legislation both passed and proposed which will affect us. It works for us.
    10th Jan 2019
    Wise, Old Man, but I suspect it's not the norm because financial advice can be very costly and it's difficult to find someone who is competent, unbiased and trustworthy to offer it.
    Old Man
    10th Jan 2019
    I agree, OnlyGenuineRainey, we have struck a deal with our fund about fees and have been happy with the advice given. Some of our friends were not as fortunate with their super funds and those who switched to the fund we use are happier. Finding a good super fund can be problematic as there is more to a fund than the advertised returns.
    13th Jan 2019
    Good advice Old Man.
    Re. those who switched to the fund we use are happier
    Can you say who that fund is ??
    Dave R
    10th Jan 2019
    Adding more complexity to the system when it needs just the opposite.
    10th Jan 2019
    Keep discouraging saving for retirement and wise use of savings, and then wonder why there is more aged poverty and the costs of providing the OAP is rising. False economy at every turn. Just make the dam pension universal and implement fair tax on retirement income. Simple, efficient, cheap to administer, fair to all, removes the incentive to manipulate or cheat and shows proper respect for our senior citizens instead of making them spend their final years worrying themselves sick and trying to navigate a hideously complicated and punitive system. With greater affluence among those who did save and better security for all comes higher spending to drive growth, jobs and tax revenue, more charitable donations, better inheritances to make the next generation more affluent - and thus able to pay more tax and to require less government support. The benefits are endless!
    Mad as hell
    10th Jan 2019
    Right again.
    It’s called trickle up economy.
    Trickle down economy doesn’t work.
    10th Jan 2019
    Absolutely correct OGR. The savings from eliminating the complex system that results in a bloated centrelink costing millions of dollars to run would cause an increase in unemployable unemployment and that's the real reason the system is what it is. A definite case of 'Yes Minister'.
    10th Jan 2019
    We could be excused for thinking the whole system is being continually changed just to confuse us to the degree we have no idea what our real entitlements are.
    Even full time advisers and accountants are scratching their heads.
    10th Jan 2019
    Absolutely, OGR. With the mass of confusion and disincentives to earn or save, they should "Just make the dam pension universal and implement fair tax on retirement income."

    Promotion of annuities is yet another complication being pushed by vested interests in the financial sector (and the Libs) to create another income stream for Fin advisers and managers of these schemes.
    10th Jan 2019
    Noel is off the market a bit. I am in a very good industry fund and gave had excellent returns every year for past 8 years. Enter Trump and his antics. My super has shrunk 13% in past 8 months. I won't be affected by changes Labor intends but I is only a matter of time, given their appalling monetary mhsmanagement of the past.
    It seems Aussie voters suffer from Alzhiemers. But Libs are shot ducks self inflicted - best result, Independents with minority Libs learning to be human.
    10th Jan 2019
    I like the idea of the Asset tested income stream. However, why then did the Government change the way income streams were treated from 1January 2015. If you started an income stream after that date, the account based pension was included in the income test. Account based pension purchased before that date were grandfathered. It’s a perfect example of the continuous tinkering with the system. It’s impossible to plan and you continually have to be prepared to review your situation
    10th Jan 2019
    A pension is not welfare.

    Now is the season for discontent, so do something about it!
    It is time to kill off this insane hugely expensive pensioner whacking bureaucracy.

    It is time for all of us (yes that means you) to rant at our MPs and Senators daily to take action for human decency and a huge stress reduction for pensioners

    A pension is not welfare.

    Most economist say we will save taxpayers money by dropping asset testing because of the massive overheads cost in running Centrelink and the 10,000 conflicting rules.

    Hiring more Centrelink staff will only increase taxpayer’s costs for processing the creeping insane red tape monster system politicians and well paid bureaucrats have created.

    Help scrap it now. Become a hero.

    Even poorer New Zealand has a NO ASSET pension so it is cheaper and user friendly.

    Why worry that few million$ earners get it too. That is peanuts to them, not enough for a good vintage champagne.

    Do retired and retiring people really look forward and want 100++ visits to/from Centrelink and be part of 3 million waiting queues and lost calls?

    We all (that means you) need to tell our MP and senators every day that these criminal asset tests for a pension must be dropped now.
    10th Jan 2019
    In some words from some film or other -

    Tell him he's dreaming.

    Ain't gonna happen.

    I have repeatedly posted here about people getting off their axxx and doing something instead of whinging. What's happened in all the years I've doing it. Zilch.

    No fun in that, their whole lives revolve around coming here every day, and whinging about the same stuff over and over again. It is just a game, aided and abetted by YLC staff who publish the same articles again and again.

    They don't understand why the Liberal Party (and Labor as well when in Govt) get away with treating us pensioners the way they do. It's simple really, we let them do it. Morrison is not worried. He knows we can't change anything.
    13th Jan 2019
    It won't happen while we continue to say it won't happen. Nothing good happens while people sit back and let others walk all over them. It's not 'whinging' to highlight what is wrong in our society and lobby for reform. It's the basis of democracy, and democracy only works when we do speak out. Morrison isn't worried because too few are doing what needs to be done. Good on GreyComputing for continually urging people to act in the interests of all Australians by lobbying for a very necessary change that should have been made a long time ago and that would benefit the economy as well as being fairer and more respectful to the aging.
    10th Jan 2019
    Don't forget the smaller SFRs, Billy - the smaller SFRs - the ones who don't have the massive tax dodges to work with....

    No decision on abolishing franking return in any individual case should be made without consideration of all factors - meaning the ATO has its work cut out for it.

    Assets test ..hmmm ... Dave got it with the 'Yes Minister' thing...

    I guess the government will just have to arrange so that everyone gets a meaningful job... gee -- lots of changes needed for that....

    Trickle down from the mythical unicorn 'global economy' is never going to work.... nor is Outlanding jobs and work and contracts to other nations to buld submarines and such - nations that never reciprocate with a contract here other than Resource Ripout/Ripoff Investments ...

    What could possibly possess the minds of politicians of all stamps to abide by the dictates of a 'global economy' that has no interest in their nation and people? I mean - apart from the fact that we pay them far too much so that they can fund deals for themselves out of it....... what is politics for, after all, if not to feather your own nest and use every avenue to cop cash?
    11th Jan 2019
    Ha. Yes lock in a $200 000 annuity and then find Centrelink "deems it as being $800 000 or some other made up figure. Sure! What could possibly go wrong? Haha.
    13th Jan 2019
    What assets? a 12 year old car and household furniture? No super or savings
    13th Jan 2019
    as far as centrelink are concerned even your underwear is an asset if they can value it. EVERYTHINK you own apart from the family home if you are still living in it
    13th Jan 2019
    Why? Obviously there are some in that situation because they faced crisis, suffered disability, or had serious misfortune... but most current retirees had more than adequate opportunity to acquire a home of their own and at least a few hundred thousand in savings. My partner and I had extensive health problems, huge medical bills for a special needs child, faced a natural disaster, almost never earned more than minimum wage, and had extensive periods of unemployment or only one income. Yet we put our children through university, paid off a home, and retired self-funded. Most of today's retirees should have assets, unless they were very poor managers. That's not being unsympathetic. Of course there are valid exceptions, but there are also vast numbers who either chose to spend up big or manipulated to get a pension - because pensioners get a far better deal than struggling self-funded retirees!

    That said, I wish the damn government would stop tinkering with the rules and making retirement so damn complicated and risky for those who DID plan and save and SHOULD be left alone to enjoy the comfort they earned and deserve.
    14th Jan 2019
    Politicians make sure when they retire that they are never made to suffer the rules Centrelink have to administer to everyone else. They have their exorbitant over the top pensions, allowances, perks etc. They chip away at SFRs' causing them to receive nil pensions like done recently. Thats cos they make the rules

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