How to estimate when super stash will run out

Martha* asks Noel Whittaker how she can estimate when she will need an Age Pension.

How to estimate when super stash will run out

Martha* asks Noel Whittaker how she can estimate when her super will run out and she needs to prepare to transition to an Age Pension.

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Q. Martha*
I am a single woman, about to turn 65, and I have been retired for two years. I downsized and bought an apartment four years ago, salary sacrificed for many years into my super and was gifted some money from a family member. I know I am better off than most with over $800,000 in super. My question is how to manage as I approach the Age Pension cut-off point.

I can see there will come a time when I will be close to pension cut-off, but how do I know when that tipping point is? And should I book a couple of holidays, replace my white goods, do major maintenance work, and so on, and then go on the pension?

I know that once I am on the pension, I will initially only draw a part-pension and will need to tighten my belt. Is there any general rule about how you make that decision?

A. The assets test cut-off point for a single person is $567,250 – you are a long way away from that point. I suggest you go to my website and have a play with my Retirement Drawdown calculator, which will let you enter your financial assets, expected rate of return and the amount of the annual withdrawals you expect to make. You can then model your own situation.

For example, if you used a starting balance of $800,000, an estimated earning rate of six per cent, and annual drawings of $70,000 a year indexed at two per cent, the calculator would tell you that your money would last for 16 years. It will also tell you it would be around seven years before you reach the asset test cut-off point, but keep in mind that what that value would be then is anybody’s guess. Remember, the ageing population is putting increasing stress on the welfare budget.

History tells us that retirees tend to spend more in the early years of their retirement than the latter years so you may well find that your money would last much longer than that. As your capital becomes reduced, you should reach a point where you would be eligible for the Age Pension – and you can work out what that would be by using the Age Pension calculator on my website.

*Martha is not her real name.

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.

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

Are you eligible for an Age Pension? Do you know your rights? The PensionChecker™ tool has all the information you need.

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    Disclaimer: All content on YourLifeChoices website 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.





    COMMENTS

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    johnp
    27th Mar 2019
    11:28am
    What happens if one runs their super balance down too quickly. Will centrelink look back and say where is that capital and deny any pension ??
    Sundays
    27th Mar 2019
    12:55pm
    No John, unless that money is given away eg gift to family in the 5 years preceding applying for the pension. Then it falls within the gifting rules. Spending on yourself is not a problem
    Arvo
    31st Mar 2019
    1:27pm
    If you are on Old Age Pension and declared the Super balance to Centrelink as part of your Assets at the outset then deplete it too fast and report a lower balance at whatever stage ( although you are suppose to report any change of $2,000 or more financial circumstances within 14-days) don't be surprised to receive a phone call.
    https://www.superguide.com.au/smsfs/age-pension-is-super-benefit-counted-towards-centrelink-assets-test
    I spent $30,000 on home renovations and reported the lower balance of my financial Assets and sure enough...Bingo!...I got a call from Centrelink..to "Please explain what happened to the $30,000"
    mike
    27th Mar 2019
    11:40am
    Hockey promised that those who lost their part pension due to his heinous changes would still retain the PCC. This was a lie, then Turnbull promised to reinstate to those also but it was also a lie. It was cut off after only one day. Now Shortens retiree tax grab and his comments that he doesnt need the retiree vote should send warning bells to all retirees. Labor Senator Kristina Keneally is campaigning for Shorten and spreading filthy lies, such as the tax grab will only affect the wealthy, which is an outright lie, plus she is also lying about how dividend imputation works, and is trying to turn people against retirees, a sort of class warfare, calling them the wealthy who dont deserve tax refunds. I am sure Keneally expects her own full salary, lurks and perks and tax benefits, so why deny it to the low income retiree. Also Federal member for calare, Mr Gee has been approached on behalf of retirees, but remains ominously silent. It appears the elderly and retirees are targets for both major parties. Well. with past , current, and future changes to gov policy, dont count your super as being very secure. When the Gov wants more money, it will just take it
    Tom Tank
    27th Mar 2019
    1:05pm
    Since a low income retiree would not be paying tax then there will not be a tax grab. Should you be paying tax then it would be fair to say you are not really low income.
    Tom Tank
    27th Mar 2019
    1:05pm
    Since a low income retiree would not be paying tax then there will not be a tax grab. Should you be paying tax then it would be fair to say you are not really low income.
    Cheezil61
    27th Mar 2019
    1:51pm
    Agree re super not being very secure! Has apparently happened previously with the 7% of workers wages that went towards our pensions years ago in another era (according to another post on this site a few months ago) so it's obvious these wealthy politicians don't mind stealing from us paupers! Any sugeestions where our super may be safer tho & still earn enough interest to keep it afloat til we need it? Who do we trust? (Financial Advisors can be dodgey as well & tend to look aftermainly their own interests)?
    Farside
    27th Mar 2019
    2:26pm
    Cheezil61, you should not believe everything you read on this site when it comes to welfare related matters.

    It is a myth the Menzies government stole the money they collected to fund the age pension. It is also myth the Government deprived pensioners of their entitlements and continued to collect social services contributions originally intended to fund the pension. The National Welfare Fund and its 7.5% social services levy did not amount to a contributory social insurance system.

    https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id:%22library/prspub/4511255%22
    Anonymous
    27th Mar 2019
    3:45pm
    Tom Tank, you are sadly very mistaken. Retirees on very low incomes ARE being targeted by Shorten. The wealthy are NOT. Here's how it works. If you saved for retirement and don't get a pension, but have, say $900,000 in super for a couple, you might be drawing an income less than the OAP (depending on your investments), but if you have investments in shares paying franked dividends, Shorten WILL steal 30% of the income from those investments. Even though you don't earn enough to pay tax, you will be taxed at a high 30% rate on that income. And if you then have to drain away your savings and apply for a pension, you will still be denied the fair refund that other pensioners receive - as punishment for having saved and tried to NOT be a burden on taxpayers.

    Mike is absolutely correct, and you clearly don't understand the issue at all. Labor is going to demolish the retirement plans of up to 1 million battlers, but anyone with a high income or more than $1.6 million in super is okay. Shorten plans a massive wealth transfer from battlers TO THE WEALTHY (though lying Labor politicians have painted it as the opposite and clearly fooled a large percentage of the population).

    If you vote Labor, you support transferring wealth TO THE WEALTHY and bashing battlers.
    Karl Marx
    27th Mar 2019
    7:22pm
    Cashed in all my shares & diversified into an industry pension stream & a few other areas that will generate a small but growing income for me.
    Will no longer have to rely solely on dividends & especially FC.
    I have no issues with the ALP policy as after reading Mr Bowens media releases regarding FC's & Mr Shortens media releases the average retiree won't have any issues or be disadvantaged in anyway, but it's the LNP I'm worried about as they have told many many lies in the past to gain power then backpedaled to gouge retirees, not just pensioners.
    The LNP have consistently shown that they will support their rich mates & corporations while making pensioners one of the worst in poverty at over 25% for those 66 & over.
    Anonymous
    27th Mar 2019
    9:35pm
    Sad that you are believing Shorten's lies, SFR. They ARE lies. Massive lies. The harm that policy will do is terrifying. And many CAN'T change their investments for all kinds of reasons. Some would lose more by changing, because they have grandfathered concessions for their existing SMSF.

    Labor's policy is about transferring wealth TO THE WEALTHY. Nothing else. They are worse than the LNP by far - though I agree with you about the LNP. We are left to choose between the devil and the deep blue sea.
    Karl Marx
    27th Mar 2019
    11:09pm
    Wrong on all counts O&W. If Mr Shorten & Mr Bowen are lying then we'll find out if they are the government after may. But remember what Tony Abbott & the LNP spun to retain government.
    You have to trust someone or give them the benefit of the doubt. If the ALP are lying then they'll cop it next election. But the current LNP have already proven time & time again that they WILL LIE to retain power.
    As far as grandfathering rules go, I had the same situation, number crunched & decided that that over a few years I'm back in front again by diversifying my investments. I don't agree with grandfathering rules anyway as it just adds another degree of complexity to the already far to complex system.
    All the more reason Australia should adopt a universal pension. Simple, very little admin cost compared to the current costs, 99.99% rort free & no robo debt to worry about & those that still have hardship can apply for welfare.
    Farside
    28th Mar 2019
    12:03am
    @O&W if a couple with $900,000 in super for a couple is drawing an income less than the OAP (depending on investments), then they may have to dip into their capital and have a hard conversation with their financial advisor. It's not so hard. Is their a reason the couple would not start an income stream with at least minimum drawdown?
    Karl Marx
    28th Mar 2019
    12:33am
    Farside, totally agree
    900k invested in a good industry retirement income fund would result in a tax free income of 63k per annum @ 7% or 90k @ 10%. the drawdown minimum is 5% so 45k income.
    The March couple full rate per fortnight is $1,396 which is $36,296 per annum so with the minimum drawdown rate of 5% a couple are still better off by $8,704 per annum or $334.77 per fortnight.
    And if their pension income fund performs better than 5% then their capital will grow, ballpark figures of course.
    So basically if you have 900k & you are getting less than the OAP then YOU really need to look at how you are investing & if it's just shares with FC's then I'd be having a very hard long look at that as that's what I did & diversified out of shares & FC's.
    Farside
    29th Mar 2019
    9:34pm
    SFR, it is certainly a nice problem to have as there are so many solutions that offer better than OAP. Index funds have averaged better than 10% over the past 10 years since the GFC. These folk would be well advised to have that conversation with their financial advisor if they have less than the pension and desperate to keep the franking credits.

    27th Mar 2019
    12:17pm
    Maybe a good financial adviser can help with regular visits. A small cost may well be offset by the quicker availability of pension entitlements.
    Mad as Hell
    27th Mar 2019
    12:35pm
    “Martha” apears to be in good financial position and I wish her a happy and healthy retirement.
    Judging from past lies the odds of the IPA, LNP, GREENS, ALP, PHON not moving the retirement goal posts are slim.
    Halving the Pensioner Assets Test taper rate and other changes in 2017 is stealing pensioner entitlements.
    Retirees deserve better.
    johnp
    27th Mar 2019
    12:45pm
    I agree. The Pensioner Assets Test taper rate and the way it victimizes and disadvantages Self Funded Retirees especially. This should be a basis for a Class Action Case. perhaps an enterprising Law Firm could look at that ??
    Anonymous
    27th Mar 2019
    3:51pm
    I think if Shorten is elected we will have to have a class action for discrimination against self-funded retirees. He has started a shocking hate campaign against them, accusing them (untruthfully) or rorting, ''double dipping'', and being selfish and greedy - all based on his MONSTROUS LIE that the SFRs he is attacking are wealthy. Forgot to add that he is favouring the very well off and pensioners who have expensive homes and a nice nest egg of shares. The lies are disgusting, and it's shocking that he has turned retirees against one another and pensioners are now endorsing an attack on the self-funded. In a world of DECENT people, Labor wouldn't have a hope of being elected after announcing such a disgracefully unfair and discriminatory policy.
    Anonymous
    27th Mar 2019
    3:51pm
    I think if Shorten is elected we will have to have a class action for discrimination against self-funded retirees. He has started a shocking hate campaign against them, accusing them (untruthfully) or rorting, ''double dipping'', and being selfish and greedy - all based on his MONSTROUS LIE that the SFRs he is attacking are wealthy. Forgot to add that he is favouring the very well off and pensioners who have expensive homes and a nice nest egg of shares. The lies are disgusting, and it's shocking that he has turned retirees against one another and pensioners are now endorsing an attack on the self-funded. In a world of DECENT people, Labor wouldn't have a hope of being elected after announcing such a disgracefully unfair and discriminatory policy.
    Karl Marx
    27th Mar 2019
    7:24pm
    Sorry O&W I don't agree with anything you have said even though you seem to have a bad habit of repeating yourself just like Tony Abbott always did.
    Greg
    27th Mar 2019
    8:04pm
    Are you still at it OGR - look at SFR here, he hasn't a problem, sold the shares and now getting a pension stream. He's happy NOT to get the FC, just happy for the return he gets on his investment. You go on and on about selfish and greedy people, seems to me your the greedy one, wanting every cent you can gather rather then the more modest return in a pension stream account.
    GeorgeM
    27th Mar 2019
    8:49pm
    Quite correct, Mad as Hell - before your responders hijacked the conversation.

    Noel, the supporter of right-wing Liberal Govts who wants to ignore the nasty Asset Test changes, says "Remember, the ageing population is putting increasing stress on the welfare budget." - that is not the real issue, as he should have said - Beware of the nasty Political parties changing the rules.

    They should create a Future Fund outside Govt control (for future planning), ensure appropriate level of taxes are collected from Large Companies & the Rich, and give Universal Age Pension instead.
    Anonymous
    27th Mar 2019
    9:40pm
    Lucky SFR to be able to more investments, Greg. Some people are too damned rude and ignorant to accept that others are not so fortunate. Individual circumstances vary. And regardless of what SOME self-funded retirees may do, Labor is shifting wealth TO THE WEALTHY and closing one of the best opportunities battlers have for improving their situation and saving for retirement. And it is PATENTLY UNFAIR. Nothing anyone says can make it fair to recognise a 30% deduction from dividends as tax when the dividend is paid to a wealthy person and not tax when it's paid to someone struggling on a low income. It's one or the other. It can't magically change because the recipient is needier.

    George, I agree. But Noel should have noted that Labor will dramatically INCREASE the stress on the welfare budget by slashing incomes and making saving for retirement futile. Neither party can be trusted. Both are corrupt and self-interested and destroying the nation.
    Greg
    27th Mar 2019
    11:39pm
    OAW - you said it " Individual circumstances vary". Exactly they do, but you go on and on about YOUR circumstances and assume "1 million battlers" will have the same problem. I doubt that many rely on FC that much, ones I know don't own shares at all. Maybe we move in different circles, but how do you know up to 1 million people will be affected and then crash our economy.

    You do realise that super funds will still exist, the managers of those funds still need to invest the money in shares, Australian shares if that's part of the fund chosen. They won't take all the money out, they can't, if a customer chooses to invest in the Australian stock market though their super that's what the fund does. And don't think for one moment that the shares held by "mums and dads" dramatically affect the market, it's the fund managers that affect the market, the big money where they have dealers who get orders for $30 million to buy BHP and sit there day after day, buying bit by bit when the market is at the right price, they're the guys moving the market and that won't change.

    Look at the stock market right now, the market is a reflection of where the economy is seen to be in the future, there's a strong chance Labor will get in but we haven't seen our market nose dive. If it was thought the market will crash because of Labor and their FC policy it would be going down now.

    I know thing may not be great for you personally, I'm sorry about that, but it's not total doom and gloom as you make out.
    Farside
    27th Mar 2019
    11:56pm
    @O&W " we will have to have a class action for discrimination against self-funded retirees" ... good luck with that, to borrow a phrase from Daryl Kerrigan ... you're dreaming.
    Sundays
    27th Mar 2019
    12:59pm
    Martha is doing well. She should be able to live comfortably as a single person on $50,000 per year rather than $70,000. Her Super will last 25 years plus at some point she would qualify for a part pension, so her money should last longer.
    Rae
    27th Mar 2019
    1:50pm
    Yes I agree. Barring huge market corrections she has provided very well for a retirement independent of government control.

    Some independent fee for service financial advice and a good accountant will also be useful.
    Karl Marx
    27th Mar 2019
    11:20pm
    50k a year is nearly 1k a week. If she can't live very comfortably on that & squeeze in the odd cruise or travel then she needs to look at her expenditure.
    800k per year if in a good industry fund should give her 56k per year income @ 7% at 10% her income will be 80k per year. Rough ballpark figures but in reality her capital should grow
    Just saying.
    inextratime
    27th Mar 2019
    2:05pm
    Martha is right. Her circumstances are unusual. Compulsory Super was introduced in 1992 and only attracted over 9% per annum fairly recently. Therefore over that 26 year period to accumulate $800,000 means that her salary was around $200,000 a year or the money she was gifted must have been substantial and/or the SS was significant. Either way, it is not a typical scenario and her situation would only apply to a very small % of readers of this forum.
    Farside
    27th Mar 2019
    2:29pm
    Plenty of workers were in superannuation and provident funds long before 1992.
    inextratime
    27th Mar 2019
    4:43pm
    Correct, but as I said in my post compulsory super was not introduced until 1992. I was contributing to super in 1978 but it would still take a considerable monthly contribution to accumulate to $800k. In my case the amount I contributed over those years to 1992 was less than the retained amount after fees. The interest paid was minimal and not subject to a compulsory return %.
    inextratime
    27th Mar 2019
    4:43pm
    Correct, but as I said in my post compulsory super was not introduced until 1992. I was contributing to super in 1978 but it would still take a considerable monthly contribution to accumulate to $800k. In my case the amount I contributed over those years to 1992 was less than the retained amount after fees. The interest paid was minimal and not subject to a compulsory return %.
    Greg
    27th Mar 2019
    8:07pm
    She may have put a large chunk in from somewhere else, I put $350,000 in my super from our house sale recently.
    Captain
    27th Mar 2019
    8:40pm
    Martha said she downsized (from a house ?) -to an apartment. Depends on where she sold and then bought.

    Greg has got it right. The sale of his house gave him $350 for super contributions. Makes it seem that after contributing to super for many years, including salary sacrificing you can end up with a sizeable nest egg. Good on Martha for accumulating for her future.
    Anonymous
    27th Mar 2019
    9:44pm
    Might have inherited money and put it into super - or inherited her late husband's super (if she had one). Many women inherited super from their spouse. Might have transferred personal savings to super. Assumptions are dangerous, inextratime! There are lots of ways people end up with money in super without ever enjoying a high income.
    inextratime
    27th Mar 2019
    2:05pm
    Martha is right. Her circumstances are unusual. Compulsory Super was introduced in 1992 and only attracted over 9% per annum fairly recently. Therefore over that 26 year period to accumulate $800,000 means that her salary was around $200,000 a year or the money she was gifted must have been substantial and/or the SS was significant. Either way, it is not a typical scenario and her situation would only apply to a very small % of readers of this forum.
    Blinky
    27th Mar 2019
    3:22pm
    U mentioned before the asset test would increase to $387.500 from Apr 2019. How is that an increase? It's been like that x a while now!
    fishy
    27th Mar 2019
    10:06pm
    I wish I had the same problem of worrying about loosing the pension because I had too much after 50 years of working