Jack and Sue’s retirement makeover

Jack and Sue have something in common with many other retirees. After using their superannuation to pay off their mortgage, they own their home but now have a low super balance from which to draw to fund their retirement.

Many older Australians are in the same boat – they have some assets but little cash. According to the YourLifeChoices Retirement Affordability Index™, they are in the Constrained Couples Retirement Tribe.

Is there a way Jack and Sue can improve their financial situation? We’ve asked retirement expert Glenn Smith-Cameron to see if he can give Jack and Sue a retirement makeover.

Jack and Sue are homeowners
Jack and Sue own their own home, having used most of their super to pay off the remainder of their mortgage. They now have limited super – $125,000 – and plan to use $80,000 to buy an annuity, which will give them about $4000 per month in income. They have a small amount in the bank – $15,000 – plus two cars and household contents totalling $150,000 in value.

Their total assets are $290,000.

Will they receive an Age Pension and if so, how much?

Assessable assets
The annuity is considered a short term 100 per cent asset-tested annuity and is deemed.

Their assessable assets are:

$80,000 income stream
$45,000 super
$15,000 bank account
$10,000 household contents
$70,000 car 1 – very expensive vintage value
$70,000 car 2 – ditto
Total: $290,000

This figure is under the threshold for a homeowner couple, so the Age Pension calculation is Max Rate pension.

Assessable income
Their assessable income would just be the deemed amount on their $140,000 (super, income stream and bank account).

This is just $3275 per annum which is also below the income threshold.

Therefore, they are entitled to the full Age Pension of $690.70* per fortnight each including supplements.

Could they increase their income?
Retirement consultant Glenn Smith-Cameron has assessed Jack and Sue’s situation and believes the following strategies might be useful. Their entitlement to the full Age Pension will not change if some of these options are considered. He says they could improve their monthly cashflow by:

  1. Drawing down their own monies for the next two to three years. The value of an annuity is questionable as at that level of income – $4000 per month – it will run out within two years.
  2. Creating cashflow from the Pension Loan Scheme. The loan scheme is to be extended next July to 150 per cent of the Age Pension. Jack and Sue could use the scheme to generate an additional $18,000 a year against the value of their own home.
  3. Considering the benefit of two vintage cars to their lifestyle now and into the future. Turning one or both of the vehicles into cash is always an option.
  4. Downsizing, which would be a totally new scenario.
 

Are you in a similar position to Jack and Sue? Could you do with a retirement makeover? Are you worried your money won’t last? * Information correct as of 20 September 2018

Related articles:
Will your retirement income last?
Are you getting enough pension?
Do you have retirement concerns?

Disclaimer: This email is not advice. This email is general in nature only and does not constitute or convey specifc or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended.

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