RETIREMENT - NOW WHAT?
Now is the time all that work in preparing your Super nest egg pays off. You get to start enjoying life without the need to work every day. It can be a bit scary, knowing that what you have is what has to last you for the rest of your life.
You now have to choose what to do with your lump sum. It’s best not to rush into things. Take your time to decide what’s best for you. We are living longer and healthier lives, average life expectancy for a 65-year-old today is 19 years for men and 22 years for women. Remember that when actuaries talk about life expectancy they mean the age when half of that group are likely to have died. In other words there is a 50% chance that you will live longer than this – perhaps a lot longer!
Australian Institute of Health and Welfare estimates that for men their 19 years would be split 4 years with dependency, 7 years with slight disability and 8 years fully independent. What this means is that your expected expenditure will be higher early in retirement as you do those things you always wanted to do and at the end when you will likely need to pay for care. In the middle is a period where your expenditure will likely be significantly less than pre-retirement as your interest and abilities wane. Your plan for spending your retirement savings needs to take this into account.
WHAT TO DO WITH YOUR SUPER
When you retire, you have to decide what to do with your Super. You don't have to decide straight away, but be careful about cut-off ages for contributions (65) or access to tax free withdrawals (60). When you decide you are ready to make the change then you have three key options:
- You can take some or all of your Super as a lump sum
- You can start a pension (usually referred to as an account based pension or an allocated pension)
- You can choose to buy an annuity from an insurance company which can guarantee an income stream for as long as you live but is less flexible.
Or you can combine some or all of these. Its really up to you.
You could for example chose to take a lump sum to repay debt, buy a new car, take a holiday or move to a new house, roll over some of your Super into a pension to provide you with a tax effective income and allocate some to an annuity which can provide you with income certainty and guard against outliving your money.
Whatever you do it is important to manage your 2 biggest risks; inflation and longevity. Make sure your money is still working hard and you're not panicked about putting it all in low risk assets like bank deposits.
Take a 3 Bucket Approach - cash, short term and long term
The first bucket is invested in mainly cash and is designed to provide income in the next 3-5 years. The second bucket is designed to deal with years 5-10 and is invested in a mix of defensive and growth assets to provide some growth and protection from inflation without taking too much risk. The third bucket is for the long term to provide for late life care and perhaps a legacy for your children and is allocated to higher risk assets designed to provide long term growth. The longer term allows you to ride out the ups and downs in the market. Money is transferred from buckets 2 and 3 to top up the cash bucket over time. It is important to get the right advice before doing anything.
The Age Pension
Everyone over 65 who passes an income and assets test is entitled to the Age pension worth up to $766 (per fortnight) for a single person and $1,154.80 for a couple combined. If you get the Age Pension you may also be eligible for a number of supplements totaling $76.80 a fortnight (for singles) and $115.80 a fortnight (for couples combined). There is a complex means test which looks at both your assets and your income.
You will get the full pension if your income is less than $7,384 and you have assets of less than $286,500 (for a home owning couple).
You can still get some pension if you have income of $73,455 and assets of $1,134,000 (for a home owning couple). The right advice can make all the difference to how much you receive.
If you qualify for the Age pension, you may also get assistance with your rent. Rental assistance is calculated as 75% of the amount of rent paid above a minimum but capped at a fortnightly limit. For example a couple could get up to $118 per fortnight if they paid rent of $340 or more is paid per fortnight. The amount payable is reduced in line with any reductions in the pension due to the income or asset tests.
Pensioner Concession card
If you receive any of the Age Pension you will be able to get a Pensioner Concession Card. This gives you access to Australian Government health concessions and helps with the cost of living by reducing the cost of certain goods and services. A Pensioner Concession Card entitles you to cheaper medicines under the Pharmaceutical Benefits Scheme and other medical benefits. It may also get you discounts on your water, energy and rates as well as car registration, public transport and Australia Post.
Commonwealth Seniors Health Card
If you don’t qualify for any Age pension you may still get The Commonwealth Seniors Health Card which helps with the cost of prescription medicines and other health services. You must earn less than $80,000 (couples) and you don’t have to be retired. The Seniors Card is a State Government card that gives discounts on travel and some retail services. It is available to Australians aged 60 and over. Most States have a work test – that is you must be retired or working less than a certain number of hours per week. There is no assets or income test.