What you'll learn in this step: Get advice on those initial decisions
that need to be made about retirement, including when you should.
Leaving the workforce and moving onto the next stage of your life can be daunting.
Not only do you have to face the prospect of no longer participating in the
workforce, which is a huge psychological hurdle, you have to deal with a myriad
of other decisions such as where to live, what to do with your time and whether
you can afford to do everything you want.
When should I retire?
That's up to you, but there is no reason why you can't work on a part-time
basis or start a new venture well past 65. In fact, if you can continue working
and you want to, you will put less pressure on the funds you have accumulated
for your retirement and you will be able to enjoy a better standard of living
when you do eventually retire. Many people choose to stop work at 55, the age
when you can access your superannuation.
Learn more: Empty nest egg, The Sydney Morning Herald, 12 June 2002
It's never too late to save for your retirement - which is good news for the many of us who haven't. Christine Long reports.
Will I get the Age Pension?
Qualifying for the government-funded Age Pension is dependent on a number of factors
such as your age and whether you meet various residence requirements.
Date of Birth
Qualification Age
Before 1 July 1935
60
1 July 1935 to 31 December 1936
60.5
1 January 1937 to 30 June 1938
61
1 July 1938 to 31 December 1939
61.5
1 January 1940 to 30 June 1941
62
1 July 1941 to 31 December 1942
62.5
1 January 1943 to 30 June 1944
63
1 July 1944 to 31 December 1945
63.5
1 January 1946 to 30 June 1947
64
1 July 1947 to 31 December 1948
64.5
1 January 1949 and later
65
Note: Eligibility for women depends on their date of birth. The minimum age
for women to get the Age Pension began to increase from 1 July 1995 and will
continue to increase until it reaches 65 by 2013, making it 65 for men and women.
Case study
Nick and Polly are keen to retire within the next five years but want to
ensure they maintain a comfortable life, with an income of $40,000 a year.
Read the full case study, The Age,
18 Feb 2002
Should I move when I retire?
Many people change their accommodation when they retire either by moving to
a smaller house, an idyllic spot on the coast or a retirement village. This
is often because retirees find themselves asset rich and cash poor. Moving to
something smaller can often free up capital that can be put to better use in
the way of an income. The main point to remember is not to rush into anything.
Learn more: The great escape, The Sydney Morning Herald, 12 June 2002
Now that you're not tied to work, the world's your oyster. But which part of the oyster do you want to live in? Barbara Drury reports.
Retirement living issues
Fancy a sea change?
If you are planning leaving your area and moving to that lovely spot up the coast, make sure you are making the right decision. Once you leave the city it's not so easy to buy back into the market if you discover you have made a mistake. Some experts suggest you rent a property in your chosen spot for a few months and see how you adapt to life long-term out of the big smoke. It might be great for a couple of weeks. ...But how will you fare for 20 or 30 years? And what are the health facilities like in your sleepy haven? After all you may be fit now, but as the years pass, you may need to rely more and more on quality medical care.
You
don't pay capital gains tax on the sale of your family home, so it's a good
way to access some retirement capital.
Is village life for you?
Moving to a retirement village is an option many retirees take. Of course, it's not right for everybody. Given that retirement villages are not viewed as the investment of the century, you need to remember that what you are paying for is lifestyle not profit. You might like the idea of the swimming pool, the bowling green, the gymnasium and the general community spirit and maybe the health care down the track - but don't get carried away with the glossy brochures. Make sure the villages in which you are interested are registered with the Retirement Villages Association. Each State has its own regulations for retirement villages so make sure the ones in which you are interested are compliant.
Learn more: Retire in Style, The Age, 27 Nov 2000 Check out the sale conditions as well as the swimming pool when buying into
a retirement community, advises Kylie Elston.
There are four different types of ownership - strata title, company title, under licence and under leasehold. It can be a complex area so seek legal advice before signing yourself up.
What you'll learn in this step: Clearing your debts and locating missing
super are just two ways to determine how much money you will have for your retirement.
How much money will I need to retire on?
This is the $64,000 question, although many financial houses will tell you
it should probably be the $640,000 question. Most people should aim to have
enough money in retirement to generate an annual income of about 60-70 per centof
their final salary. But this is not always possible, particularly when you think
that you might spend as many years in retirement as you have in the workforce.
That's a long time to provide for. It might suit your purposes to draw down
more money in the early years of retirement when you want to travel and are
still active and later, when your lifestyle slows down, rely on a lower income
and maybe some government assistance.
Learn more: Retiring with comfort, The Sydney Morning Herald, 26 Jan 2002
It's the Australian image of the perfect life: the home on a large block,
the backyard barbie with the mates, and time to enjoy it all. But in recent
years there has emerged something we can add to the dream: the comfortable
retirement with time and cash to travel, eat well, spoil the grandkids, and
work on that golf handicap.
Learn more: Retiring gracefully, The
Age, 02 Feb 2002
Just how much money do you need to have in retirement to maintain your standard
of living? Michelle Innis reports.
Case study
Caroline, 45, is a teacher who wants to be debt-free, support her children through their tertiary years and save for a comfortable retirement.
Read the full case study, The Age,
29 July 2002
Where does my retirement money come from?
When you retire, the money you have accumulated in your superannuation fund
will either be paid to you as a lump sum, a pension or rolled over into an annuity
or a pension. This money is called your eligible termination payment. (See our
fact sheet about withdrawing
super.) There's no need to rush into deciding what to do with the money.
Park the funds in a no entry/no exit fee rollover vehicle until you are ready
to make your decision. Of course, you may also have other monies outside the
superannuation arena as well, which may provide you with an income in retirement.
Learn more: A bright future in taking advice,
The Age, 26 March 2001
Retirees often find financial planning a daunting prospect but help is available.
See our superannuation
guide to compare the different fund types and take control of your super
to secure your financial future.
Clear your debts
One of the first things you should do when you retire is clear all debts. If
you are going to spend the rest of your life living on a fixed amount, carrying
debt is not a sensible option. many people use some of their super to pay off
their mortgage.
Learn more: Retirement plans,
The Age, 29 July 2002
Owning your home could be a substantial advantage when you retire..
Find your missing super
More than $4.5 billion is currently lost in super – either because people
have lost track of their super or their super has lost track of them. This might
be because you have changed jobs, changed address or your account was transferred
from another fund as a lost account. A site, run by the Australian Taxation
Office, www.findmysuper.com will help
you find it. For $55 Find My Super will provide with a detailed report that
can help consolidate your account into one fund. Or you can call the tax office
on 131 020.
Discount cards for seniors
There are three cards that age pensioners or self-funded retirees need to be
aware of. These are the Pensioners Concession Card, the Commonwealth Seniors
Health Card – both offered by the Commonwealth government - and the Seniors
Cards offered by the different state governments.
The Pensioners Concession Card provides several major benefits including reductions in
property and water rates, energy bills, telephone, reduced fares on public transport, and reductions on motor vehicle registration. Train vouchers for interstate travel are also offered.
To be eligible for this card you need to be receiving one of the following:
a pension;
Parenting Payment (Single);
Mature Age Allowance;
Mature Age Partner Allowance;
Carer Payment; or
be aged over 60 and have been receiving one (or a combination) of the following
payments continuously for more than nine months: Newstart Allowance, Sickness
Allowance, Widow Allowance, Partner Allowance, Parenting Payment or Special
Benefit.
The Commonwealth Seniors Health Card is designed to help senior Australians
with the cost of medicines and also includes a quarterly telephone allowance. To qualify for this card, you
must be an Australian resident, living in Australia; and have reached age pension
age but do not qualify for the age pension. From 1 July, 2001, the income limits
to qualify for the card are $50,000 for singles and $80,000 for couples. There
is no assets test.
Cardholders are able to get a discount on prescription medicines though the
Pharmaceutical Benefits Scheme (PBS). By showing the card you will normally
only pay $3.50 for each medicine.
All states offer a Seniors Card and in some cases you can use the cards between
states. To qualify for a NSW Seniors Card, you have to be 60 years of age or
over; working less than 20 hours per week, and be a permanent resident of NSW.
There are no income, asset or pension qualifications for the Seniors Card and
holding this card does not affect your eligibility for pension entitlements.
Most of these cards give concessions on public transport but the main benefits
come from the discounts offered by private businesses. In reality, you need
to have money in order to save money with these cards although they are still
popular.
Remember
there is always the safety net of Social Security.
What you'll learn in this step: Find out more about the four types of
income streams available and the advantages and disadvantages of each.
There are a number of ways you can access your superannuation funds. A popular
way because of the tax concessions offered is via an income stream in the form
of a pension or annuity. An income stream means you are taking a product that
will give you income on a regular basis: monthly, quarterly or annually.
Most people want some form of income stream in their retirement. After all,
you have most likely spent a lifetime receiving a regular salary and organising
your finances accordingly. Why would you want to change that in retirement?
Keep
some money aside for emergencies. Income stream products often don't allow you
to access your capital.
Should I take a lump sum?
Many retirees take some of their superannuation as a lump sum and roll the
remainder into an income stream. You should always keep some money aside for
emergencies or the odd treat, such as an overseas trip. However, you should
aim to keep your money within the superannuation environment as you only pay
15 per cent on your earnings.
Learn more: Drawers a blank, Sydney
Morning Herald, 27 Nov 2002
We should be very careful with our super lump sums. They are, after all, our life savings, which cannot be replaced if lost when we retire.
Types of income streams
There are four main types of income stream pensions and annuities:
Allocated income streams
Lifetime income streams
Life expectancy income streams
Fixed-term income streams.
Because these products are within the superannuation environment, they are
tax effective. Centrelink also looks favourably on income-stream products when
it comes to claiming the aged pension or part pension.
A
pension is issued by a superannuation fund, while an annuity is issued by a
life insurance company. Legally there are differences between them, but in practice
they do the same thing.
Allocated income streams
Allocated income streams are the most popular form of income stream because
they offer the greatest flexibility. This is because you can access the money
should you need it for an emergency, house renovation or maybe a holiday. In
addition you have the flexibility to select how much money you will receive
each year within maximum and minimum limits that are set annually.
Advantages
Flexible
Regular income
Choice of investment options
Access to your money
Disadvantages
No guarantees you will outlive your capital
Can only be bought with superannuation money
At the mercy of investment cycles
Learn more: Do you need an allocated
pension?, The Sydney Morning Herald, 20 Sept 2000
A lot of financial planners reckon these are among the best things around.
They provide retirees with a regular income.
Choice of investments
You get to choose how your money will be invested in an allocated product much
as you would have done if you had been a member of an accumulation super fund.
You can take the conservative road of capital guaranteed or capital stable,
the middle road of a managed or balanced portfolio or more aggressive growth
investments. Your choice will come down to how long you are investing for. If
you have a long-term horizon, then you will do better gravitating towards growth
investments such as property and shares, as in the longer term they will deliver
better returns.
If your horizon is shorter, then you are probably better being more conservative.
A
2 per cent difference in annual returns can make a significant difference to
how long your money will last.
Will my money run out?
Allocated pensions and annuities are not guaranteed to outlive you. Much will
depend on their investment performance, how much you draw down each year and,
of course, how long you live. It's a complex area, so you may need a financial
planner to help you work out the income you should take based on your life expectancy
and capital.
Learn more: Stopping the drip, The Sydney Morning Herald, 6 Nov 2002
The strategy: to turn off my allocated pension.
More than one income stream
There is nothing to stop you having as many income stream products as you want.
This is one way to spread your risk. However, remember the more income stream
products you have, the more you'll be paying in fees and charges.
What happens to my allocated pension if I die?
When choosing allocated pension/annuity, make sure it has a reversionary income
clause that allows your spouse to receive an income should you die. Alternatively
you can organise a provision to allow the payment of a lump sum to your spouse
on your death.
Lifetime income streams
Lifetime income streams offer you a regular income guaranteed for life. You
can usually arrange to have the income indexed for inflation. When you buy a
lifetime income stream, you are basically transferring the investment risk to
the issuer. There is no money left once you die, although you can arrange for
your spouse to receive a percentage of the income, usually 60-70 per cent. The
amount you will receive will be determined by the interest rates prevailing
at the time you take out the product. If rates are low, your income stream will
in turn be lower and vice versa. With a lifetime income stream, you can negotiate
a guaranteed period, say of 10 years. If you were to die before the 10 years,
income payments continue to be made to your beneficiaries.
Advantages
Guaranteed regular income for life
No need to worry about investment performance
If you live a long time, you'll be a winner
Disadvantages
Inflexible
Cannot access your capital
You can't benefit from booming markets
Life expectancy income streams
Life expectancy products are guaranteed to be paid for a fixed period, based
on your life expectancy at any given age. If you live beyond this age, that's
too bad – there will be no further payments. If you die you earlier than
expected, a reversionary clause can ensure your spouse continues to receive
an income. Get quotations from a number of issuers to compare levels of income.
The income offered will be determined by the level of interest rates at the
time you take the policy out. High interest rates will deliver a higher return
than low ones.
Advantages
Guaranteed income for a set period
No need to worry about investment performance
Beneficiaries will receive income if you die before term expires
Disadvantages
Inflexible, as income remains same
Generally cannot access capital
Miss out on any boom in the market
If you live beyond the term, you lose your income
You can only purchase with superannuation money
Fixed-term income streams
With a fixed-term income stream, you set the period, which can be anything
from one to 25 years. The income is determined by the level of interest rates
when you buy the product. This product differs from the other fixed-income streams
in that you are usually paid back part of your capital. You can organise for
the income stream to be index linked to inflation.
Advantages
Guaranteed income for a set period
No need to worry about investment performance
Beneficiaries will receive income if you die before term expires
You will get some of the capital back at the end of the term
What you'll learn in this step: Assess your eligibility for the Government's
pension scheme.
Social Security payments
A common strategy among those approaching retirement age is to spend up big
in order to be in a position to qualify for the Age Pension. However, the Age
Pension is really a safety net for those who do not have enough money to live
on. It certainly doesn't provide for an affluent lifestyle and you should not
go all out minimising returns on your investments just so you can claim it.
Although in an ideal world, you should try to qualify for the lowest part pension
to enjoy the ancillary benefits.
Learn more: Non-retirement benefits, The Sydney Morning Herald, 14 Nov 2001
To get some tax-free money for working beyond age 65.
For further information on aged pensions go to Centrelink.
Do I qualify for a pension?
You have to undergo an assets and an income test to qualify for the age pension.
The amount you receive in benefits will be determined by whichever test produces
the lower benefit payment. The maximum pension rate per fortnight is $429.40
for singles and $358.40 each for couples.
Assets test
While the family home is not included in the assets test, it does make a difference
in the threshold to qualify for a pension because a homeowner does not have
any rent to find. If you are a homeowner, you will receive a full pension if
your assets are less than $145,250 as a single or less than $206,500 as a couple.
Once you reach this threshold then for every $1000 above this amount you will
lose $3 off your pension until your assets reach $290,500 at which point you
will no longer qualify for a pension. For a couple, the maximum amount of assets
to qualify is $447,500.
For non-home owners wanting a full pension, their assets must not be greater
than $249,750 for a single and $311,000 for a couple. Beyond this threshold,
you lose $3 for every $1000 up to a maximum $395,500 (single)and $552,000 (couple)
before you miss out on any government pension payment.
Income stream products are often exempt from being included in the assets
test as are pre-paid funeral bonds.
Income test
Income is classified as any earnings from salaries and wages, rent, interest
and dividends and any money deemed to have been earned (see "deeming" below).
A single person can earn up to $116 a fortnight and a couple up to $204 before
they will lose money off their pension. Then there's a 40c cut in the pension
for every $1 beyond this figure. The maximum you can earn before you lose your
pension entitlement altogether is $1204 a fortnight for a single and $2010.50
a fortnight for a couple.
Deeming
To stop you parking your money in a low-earning bank account to take advantage
of the aged pension, the Federal Government introduced "deeming". That is, you
will be "deemed" to have earned a certain percentage rate on your assets, whether
you have achieved that rate or not when you apply for a pension. Anything you
earn above that rate is disregarded for pension purposes. The current deeming
rates are 2.5 per cent on the first $34,400 for a single and $57,400 for a couple
and 4 per cent for higher amounts.
Deprived assets
In another bid to stop you taking advantage when applying for a pension, you
are only allowed to give away $10,000 a year in assets without affecting your
entitlements. If you give more than this away, the amount above $10,000 will
be included in your assets for a period of five years and deeming rates will
apply.
What you'll learn in this step: Health and life insurance are important
to consider. Get information to help you make these choices.
Health issues
You might want to consider taking out private health insurance as your health
needs grow. This will allow you to have elective surgery and the doctor of your
choice. But if you have not had private health insurance in the past, a waiting
period will apply before you can make any claims. Private health insurance is
very competitive, so shop around. It is also community rated, so you pay the
same premium as a 20-year old for the same cover.
See our health insurance
guide to discover the main differences between private health cover and
Medicare and the importance of reading the fine print.
Aged accommodation
With around 60,000 people entering aged care accommodation every year, most
families will, at some time, be touched by it.
Depending on the type of accommodation chosen, you may have to pay a bond.
Basically, there are two levels of accommodation: high-care (nursing homes)
and low-care (hostels) and both attract a different type of payment. High-care
facilities cater to incapacitated and frail patients that need a lot of care.
These attract an accommodation charge which is a regular payment assessed on
a person’s assets.
Low-care accommodation is designed for people such as those with low-level
dementia who can still do simple tasks such as feed themselves. Residents in
this type of accommodation pay an accommodation bond for which there is no fixed
amount but you cannot be charged a bond that would leave you with less than
$25,000 in assets.
The amount of bond is assessed differently by every facility and there is
no upper limit although a practical limit tends to be around $100,000. This
can be held in trust by the facility and an amount can be drawn off every six
months up to a maximum of $13,000 over five years.
There are prudential requirements under the Aged Care Act 1997 that govern
what happens to your bond once paid to an aged care facility. (More details
can be found at www.health.gov.au). The
prudential arrangements have been designed so that residents can be reassured
that any outstanding lump sum accommodation bond amounts owing to them when
they leave a facility will be repaid within the time periods required by legislation.
Prudential arrangements do not apply where a resident pays an accommodation
charge because these are not refundable so there is no need to ensure that funds
can be returned to the resident.
Daily care fees
You may have to pay fees when you enter an aged care home. If you are a pensioner,
your Basic Daily Care Fee can be up to $25.08 plus a Daily Income Tested Fee
of up to $19.42 for a part-pensioner (nil for a full pensioner).
Accommodation payment
If you are a pensioner an accommodation payment (only payable if your assets
exceed $27,000) can also be charged and comprises a Bond as agreed with the
Aged Care Home and a Charge of up to $13.45 per day. For non-pensioners with
assets exceeding $27,000, the accommodation payment is a bond that has been
agreed with the Aged Care Home and a charge of up to $13.45 a day.
Home help
You can also receive care at home either through the Community Aged Care Package
or Home and Community Care.
A good place to check that your financial affairs are in order is to run through
the checklist provided by the Financial Information Service of Centrelink
can provide you with information on wills, enduring power of attorney, funeral
plans and administration of a deceased estate.
Learn more: Will power, The Age, 4 Nov 2002
The pitfalls of making a will can be many. But dying without one can have many unintended consequences. Ron Marney reports.
Wills
Make sure your will is valid and that the person nominated as your executor
is still able to carry out the task. You can make a will by consulting with
your solicitor or a public or private trustee, by buying a kit or even via the
Internet. Your will should be updated regularly, so make a point to check it
once a year. If your affairs are complex, it is best to have a will drawn up
by a legal professional.
It's a good idea to appoint somebody power of attorney over your financial
affairs, but make sure you apply for an enduring power of attorney. A general
power of attorney ceases if you become incapacitated; an enduring power of attorney
lasts a lifetime. A power of attorney is a formal document which gives somebody
the right to act on your behalf in financial and other matters. It costs about
$100 to draw up a power of attorney.
For more information on Power of Attorney see our factsheet
index.
Learn more: Running the show, The Sydney Morning Herald, 13 Nov 2002
People arrange for nursing care when they grow old but who'll look after their finances?
Funeral Bonds
These bonds are designed to provide for your funeral. Centrelink does not include
such bonds in calculating your eligibility for a pension.
Insurance
Many general insurance companies will offer discounts for those aged 55 and
over, particularly for home and contents policies. And some even from the age
of 50.
Step 1:
Step 2:
Learn more: 
Each week financial advisor Noel Whittaker answers your
questions.
