Tag Archives: Retirement
How does your pension live on after you die?
By Robert Wright /February 18,2022/
Account-based pensions offer a flexible and tax-effective method of drawing a regular income stream from superannuation. They are an essential part of your overall retirement strategy and are usually used from retirement until death. But what happens to your tax-free account-based pension when you do die?
Superannuation does not automatically form part of your Will unless a Death Benefit Nomination is completed to that effect. In this article we examine the nomination of an individual beneficiary, where the nomination of a member’s estate and a reversionary beneficiary nomination is not in place.
What are your beneficiary’s options?
The short answer is it depends. To receive your account-based pension your nominated beneficiary may have two options:
- Commencing a death benefit pension; or
- Receiving a lump-sum payment.
Both options are subject to additional eligibility criteria. Let’s briefly explore both options with our focus being option 1, commencing a death benefit pension.
Option 1: Commencing a death benefit pension
Features of a death benefit pension
A death benefit pension can basically be considered as allowing your account-based pension to live on after you die, for the benefit of your eligible beneficiary. Features of this pension are much the same as those for an account-based pension. Arguably, the most attractive feature is the tax-free nature in which the assets will reside. Recipients are required to receive a minimum cash pension payment each year which is based on their age and pension balance as at the previous 30 June.
Death benefit pensions can also be rolled into another fund at any time, however, they retain their identity as a death benefit. Therefore, a death benefit pension cannot be combined with other pensions or rolled back to the accumulation phase.
Is your nominated beneficiary eligible?
Generally, only your spouse is eligible. Adult children and your legal personal representative (your estate) would have to receive the benefit as a lump-sum withdrawal, i.e., the assets are removed from the superannuation environment and subject to tax on the taxable component. A dependent child (or children) may also receive a death benefit pension in limited circumstances; if they are under age 18; under age 25 and financially dependent on you; or have a prescribed disability.
Transfer Balance Cap
Another important matter to consider is your eligible beneficiary’s Transfer Balance Cap (TBC). To reiterate, the TBC is a lifetime limit on the total amount of funds that can enter the tax-free pension phase, currently at $1.7 million. Where your beneficiary has already commenced an account-based pension and does not have a sufficient remaining TBC to receive the death benefit pension, they may roll back their existing account-based pension into the accumulation phase to create room for the death benefit pension.
Option 2: Receiving a lump-sum payment
The alternative is to receive the amount as a lump-sum payment. With this option, the funds exit the superannuation environment. The benefits may be cashed as either in-specie or cash depending on your fund’s governing rules.
Conclusion
The death benefit pension option presents an opportunity for your eligible beneficiary to maximise the total amount of funds held within superannuation. While there are limitations on who can exercise this option and matters complicated by TBC, it is still worth considering as the assets will reside in a concessional tax environment.
Source: Bell Potter
Your 7-point retirement planning checklist
By Robert Wright /October 25,2021/
You might feel emotionally ready to retire but you’ll want to make sure you’re financially ready too. Socialising with mates, enjoying leisurely activities and indulging in the odd trip away are all things that have likely crossed your mind when thinking about how you’ll spend retirement.
Beyond that though, have you given much thought to the logistics and what it’ll cost? If you haven’t, there are a number of big points worth considering, which is where this checklist may come in handy.
1. Do I have to retire by a certain age?
The retirement age in Australia isn’t set in stone. You can retire whenever you want to, but factors that could play a part might include:
- your health
- financial situation
- employment opportunities
- your (and your partner’s) individual preferences
- the age you can access your super.
2. What’s on my to-do list?
Think about what you may like to do in retirement and what the bigger and smaller priorities may be. Consider things such as:
- your social life and recreation
- staying active and healthy
- different retirement living options, which might include relocating to a new city
- helping the kids, if you have any.
3. How much money will I need?
According to March 2021 figures from the Association of Superannuation Funds of Australia (ASFA), individuals and couples, around age 65, who are looking to retire today, would need a certain annual budget to fund a comfortable lifestyle versus a modest one.
ASFA figures are based on the assumption people own their home outright and are relatively healthy. Check out the suggested annual budgets below compared to current maximum Age Pension rates being paid by the government.
| Comfortable lifestyle | Modest lifestyle | Full Age Pension rate | |
| Single (annual budget) | $44,412 | $28,254 | $24,770 |
| Couple (annual budget) | $62,828 | $40,829 | $37,341 |
4. Where will my money come from?
The money you use to fund your life in retirement will likely come from a range of different sources, such as:
Your super fund
Generally, you can start accessing super when you reach your preservation age, which will be between 55 and 60, depending on when you were born, and retire. Knowing your super balance is a crucial part of planning for retirement, as it’s likely to form a substantial part of your savings.
Investments, savings or an inheritance
You may be planning to sell or use income you’re generating from shares or an investment property, or use money you’ve saved in a savings account or term deposit to contribute to your retirement. An inheritance or proceeds from your family’s estate may also help in your later years.
Government benefits
Depending on your circumstances, as well as your income and assets, you may be eligible for a full or part Age Pension from age 65 to 67 onwards (depending on when you were born), or you mightn’t be eligible at all.
Along with your savings, government benefits, such as the Age Pension, as well as Carer’s Allowance and the Disability Support Pension, could be an important part of your retirement income.
Concession cards, which are provided if you receive certain government income support payments, or the Commonwealth Seniors Health Card could also help you access discounts on health care and other things.
5. How can I withdraw my super?
Depending on how you withdraw your super and at what age, there will be different tax implications worth investigating, which will depend on your individual circumstances.
In the meantime, some of the options you’ll have around withdrawing your super include:
Transition to retirement pension
A transition to retirement pension enables you to access some of your super via regular payments (once you’ve reached your preservation age), whether you continue to work full-time, part-time or casually.
Account-based pension
If you’d like to receive a regular income when you do retire from the workforce, an account-based pension (also known as an allocated pension) could be a tax-effective option, noting the value of it will be based on the super you’ve saved, so won’t guarantee an income for life.
You also won’t be limited in what you can take out, but each year you’ll need to withdraw a minimum amount. Note, you can only transfer up to $1.7 million in super into this type of pension too.
Annuity
Another option is an annuity product, which generally provides guaranteed payments over a set number of years, or the rest of your life, depending on whether you opt for a fixed-term or lifetime annuity. They tend to be a more secure option as they provide a guaranteed income regardless of what might happen in financial markets. However, you’ll be sacrificing some flexibility as you can’t usually make lump sum withdrawals and your life expectancy may also be a consideration.
Lump sum
Taking some or all of your super savings as a lump sum can be tempting, particularly if you want to pay off debt, assist the kids, or go on a holiday. However, it might not be the best option for everyone, as you’ll need to consider how you fund your lifestyle after the money is gone. While you may be eligible for government entitlements, such as the Age Pension, it might not cover the type of lifestyle you’d like to have after you finish working.
6. What other matters will I need to address?
Existing debt
When planning retirement, you may want to consider what outstanding debt you have and ways you may be able to reduce it while you’re still earning an income.
Insurance
You might have personal insurance, possibly tied to your super fund, but it’s worth checking you have the right type and that it’s appropriate for you. After all, what you require in retirement could be quite different to when you’re working.
Investment preferences
Investments are part of many retirement planning strategies, and when you’re retiring, it’s worth reviewing your investment style and the options you’ve chosen.
For instance, in retirement, you might consider a more conservative approach with less risk, as when you’re younger you generally have more time to ride out market highs and lows.
Estate planning, including your will
It’s important to think about your estate planning needs. For instance, have you documented how you want your assets to be distributed after you’re gone and how you want to be looked after if you can’t make decisions later in life?
7. Do I want to make any final super contributions?
The more you can put into super before retiring, the more money you’re likely to have when you retire. You may also be interested to know that when you reach age 65 or over, you can make a voluntary contribution to your super of up to $300,000 using the proceeds from the sale of your main residence.
For couples, both people can take advantage of this opportunity, which means up to $600,000 per couple can be contributed toward super. There are however, downsizer contribution rules you’ll want to be across.
Source: AMP
How much can you confidently spend in retirement?
By Robert Wright /July 16,2021/
So much happiness in retirement comes from peace of mind, not money. Of course, the two are intertwined. Understanding your monthly budget, whatever it is, and not worrying about running out of cash in retirement, enables peace of mind.
But the academic research throws in plenty of other factors – good health, social connections, having a purpose, still learning whether by doing a crossword every day or playing a musical instrument, and being optimistic.
Most of the factors are controllable, to some extent, by individuals. And the sooner they think about planning for retirement, the better chance they have of achieving peace of mind. When it comes to money, figuring out how much you’ll need to spend in retirement is a good start. Achieving a ‘safe’ level of spending depends on the level of saving, investments and life expectancy.
What is a ‘safe’ spending level?
A spending level is considered to be ‘safe’ if the household has a high degree of confidence that they can continue spending their desired amount for at least as long as both spouses are expected to live (their life expectancy). You may have a different idea of the amount you can safely spend and still have confidence that your savings will last.
For example, a 67-year old person who has total retirement savings of $600,000 should be confident of being able to spend $40,000 each year. But if they chose to spend $60,000 each year, then their level of confidence would change as they’ll likely run out of money later in life.
For a couple with $600,000 each, they can be confident of being able to spend $60,000 combined and have enough money till the end of their lives. Understanding these numbers is important for peace of mind.
Using a retirement spending planner helps people understand what they need to meet basic living costs, and how much they want to cover for the discretionary, but not necessary, spending. Ideally, this combined matches closely to what an individual, or couple, can safely spend.
But what if it’s not? If the retirement planner tells you that you can safely spend more than what you are currently spending, there’s few concerns. But what if it’s the other way around?
Running out of money late in life is a big concern for many retirees. The latest research from National Seniors Australia, found that most older Australians (53%) are worried about outliving their savings, with women (59%) more worried than men (47%).
There are retirement products that can help fill the gap. While many retirees will have to rethink their spending plans, having an additional layer of protection in retirement that gives you guaranteed income for life (regardless of how long you live) in the form of a lifetime annuity, will be attractive to some.
A lifetime annuity provides guaranteed income for life. And it can help some retirees access more of the Age Pension. Combined, lifetime annuities and the Age Pension can ensure retirees can rely on guaranteed, regular income for their whole life. But perhaps the greatest benefit of all is peace of mind.
Securing your retirement income
As we’ve seen in the last year, things can change quickly and unexpectedly. Getting your retirement income sorted can help support a positive outlook in retirement.
Source: Challenger
How to save for retirement in your 60s
By Robert Wright /June 11,2021/
Your 60s are the time in which you’re most likely to retire – according to the Australian Bureau of Statistics, of the Aussies who are planning their retirement, the average age they intend to retire is 65.5 years. But just because you’re getting close to retirement age, doesn’t mean you can afford to stop being proactive about building your nest egg.
Alternatively, you might decide to follow through with your plans, and accept that your retirement income might be smaller. No matter which approach you choose, keeping an open mind and a flexible approach can make it easier to adapt to the current global economic situation.
Have a financial plan for your dream retirement
Many people love what they do and may not be looking forward to the prospect of walking away from full-time work. Others might be counting down the minutes until they can leave the office behind or be keen to scale back to part-time hours. Regardless of which category you fall into, as you start planning for retirement more seriously, now is the time to start picturing what your dream retirement will look like.
You can also use this time to turn your skills and hobbies – such as consulting or mentoring others – into additional retirement income. Whether you’re looking for part-time work or a hobby that brings in a little extra, why not get creative, keep busy, make new friends, and earn extra cash on the side, all at the same time?
Learn to live more frugally
Just because retirement is in your sights doesn’t mean you no longer need a retirement budget – in fact, retirement planning becomes essential in your final years in the workforce. To make sure your retirement savings are sufficiently healthy to support you through the rest of your life, it’s a good idea to revisit your budget and look at all the extra ways you can cut back on spending to give your finances a final boost.
Switching to online banking and shopping can be a sound way to keep track of your income and expenses so you have a better idea of where every dollar is being spent.
Now that you’re less likely to have dependants living with you, consider downsizing into an apartment or a smaller home – you’ll save money (reduced utility bills) and time (less space to clean). Think about selling furniture and other objects that you no longer need, including big-ticket items like a second car. Tightening your belt on the big things means you’ll still be able to afford the luxuries you’ve been counting on enjoying in retirement.
Fine-tune your passive income in retirement
Having a passive income stream – that is, income you earn from an investment, such as property or shares, rather than income you earn by working – is a great way to maintain your finances when you’re no longer in full-time employment.
Start by working out what style of investor you are, and then consider the type of portfolio that will best match your risk tolerance and the number of years you have left in the workforce. Talk to a financial adviser if you need more guidance on how to structure your investments.
Set up an emergency fund
Unexpected costs arise at all stages of life, whether related to your property or your health. In fact, recent research estimates that an Australian couple will spend between $4,700 and $9,500 a year on healthcare in retirement.
When you no longer have a steady income stream, dealing with these potentially hefty expenses can mean dipping into your savings. To avoid this, set up an emergency fund to cover any unplanned bills. Based on the average healthcare amounts mentioned above, you should be budgeting around $25 a day for an individual or, for a couple, $780 a month. Here’s how you can plan for unexpected healthcare costs in retirement.
Stay insured when you stop working
More than 70% of Australians with life insurance hold it through their superannuation. But in most cases, this ends when you turn 65. If you haven’t taken out separate life insurance, you may want to do it before you stop working.
The purpose of this type of insurance is to provide you and your family with financial security if you were to die or become terminally ill. Your premiums will be higher in your 60s, but you’ll have financial peace of mind knowing that things like living expenses will be taken care of if there’s an emergency.
Source: AMP