Sources of Retirement Income
Thursday 28 February 19
Retirement income can come through a number of different sources: Centrelink benefits, defined benefits, investments outside of superannuation or from superannuation income streams. Part time paid work is also a possibility. Let’s have a glimpse at several of them.
Life in Australia has been good to us, and that includes how we treat our own – especially pensioners. Up to about $800 per fortnight is available through the aged (and similar) pensions paid to individuals, and around $600 each for couples. However, income and assets tests may reduce that right down to nothing, and other conditions apply. Furthermore, with the baby boomers now entering retirement, the government has already pointed out that there is a funding crisis. Something will have to change.
A variety of government employees and other “special” groups can receive a defined benefit when they retire. They may be able to have a variety of choices as to when and how they receive it. Each defined benefit scheme is unique, with its own characteristics.
Investments outside of superannuation
Many people own shares, managed funds and/or investment properties. Each of these has a component of growth and income and its own unique characteristics. Before retirement the primary focus may be on growth, and after retirement growth may simply need to keep up with inflation with income becoming the key element. Security and the management of risk are also issues to deal with, so some changes may be in order.
At various stages there is also the question as to whether it’s most appropriate to keep these investments outside of super, or whether some should be moved into superannuation.
Investments within superannuation
Superannuation was designed by the government to be a tax effective way to provide retirement benefits to people like you. Take advantage of that! Account based pensions are the most common form of income from superannuation funds, and under current law for people over 60 years of age, they are tax free. Depending on how much you are drawing, the value of the funds in your pension account may actually increase for a while, but generally, as your drawings increase with inflation it begins to come down. If you’ve worked it out correctly, you may even have a tidy balance in the account when you pass on. If you have specified the reversionary pension option, those payments may continue to be made to your partner, as long as the funds last.
Both inside and outside of super it’s also possible to purchase fixed income annuities. They provide a lifetime or fixed term pension. The income may be indexed for inflation, and it’s also possible to specify a reversionary beneficiary to receive the income after you die, but that benefit is often reduced at that time. There is, however, no guarantee that they will pay out the full amount that you paid into it.
We have only begun to touch on incomes in retirement, which can get a bit complicated. Furthermore, information or advice provided in this article is general in nature and does not take into account your investment objectives, financial situation, particular needs or risk profile. All of those matters are very important in making decisions about financial products, even of a general nature. With or without the assistance of a licensed representative, you should consider whether any advice received is appropriate in light of your particular investment needs, objectives and financial circumstances. We recommend, therefore, that you make an appointment with a financial adviser to receive personalised advice prior to making any investment or financial product decision. You should also obtain a relevant Product Disclosure Statement for any financial product being considered and read it.
James Massey is a financial adviser with Grace Financial Services Pty Ltd. Both are authorised representatives of HNW Planning Pty Ltd, AFSL 225216. James is most happy to provide you with personalised advice regarding your current or future retirement income. Give him a call on 4905 0250 or submit an enquiry.