Funding your retirement

Posted on by admin
 Whether you still have a while to go until you retire, are considering retiring now, or you are retired; you may find the following articles interesting.

 Centrelink deemed income

Biggest mistake most people make, is underestimating how much money they will need to retire comfortably and not putting enough away.  The pension from Centrelink certainly won’t be sufficient if you plan to buy birthday and Christmas presents as well as eat and pay the general cost of living. You can certainly forget about travelling and other holiday plans. 

When considering your eligibility for a pension, did you know that Centrelink consider both your assets and your income in determining how much pension you will qualify for. In some circumstances they may also deem you have earned an income even if you haven’t.

 Take for instance Bob. He retires with some investments in a trust account.  Centrelink will deem him an income on top of the trust profits, therefore reducing his pension to almost nothing.  However, if Bob transfers the investments into his personal name instead of the trust account, Centrelink will ignore any income from the investment and just deem a percentage of income. Although Bob will need to declare his income in his own personal tax return, there are however, various tax offsets available once you reach pension age and in most cases they are sufficient to cover the tax you would have had to pay on your taxable income for the year. 

 The deemed income rules also apply if you have some money in superannuation and you have reached the preservation age. Even if you elect not to drawdown a pension from your super fund, Centrelink will deem you to have received a % as income.

 There are ways around this and it is important to see an accountant and financial planner to ensure that your affairs are set up to your advantage.  In addition, there are Centrelink staff who will come and talk at your event to show you how to get the most pension from Centrelink.

Transition to Retirement

Are you are 55 years or older and working but are considering retirement soon?  You can effectively sacrifice a large portion of your salary into your super fund, thus reducing the tax you pay, then drawing down a tax free pension from your super fund that tops up your disposable income.

 Consider Jane age 55, earning $50,000 in gross income. She pays tax of $8850 plus 1.5% medicare levy leaving net $41150. If she puts $20,000 into her super fund, she will reduce her gross income to $30,000.  She will only pay $3600 tax leaving $26400 net income. She then takes a pension of $14,750 so that she still has net income of $41150.  Jane’s super fund pays tax at 15% on the $20,000 contribution ($3000) meaning total tax paid is $6600. This is a total saving of $2250.

 There are many different strategies available to save you tax and put more money into your retirement. Act now and speak to your accountant or financial adviser.

 Centrelink can assist:

Your local Centrelink office usually has an adviser available to sit down with you and assess your eligibility for a full pension. They can advise you on what you are entitled to depending on your current financial position, your assets and liabilities. Contact your nearest office for an appointment with one of their appointed advisers.

*Please note Centrelink cannot give financial advice and cannot guide you on what investments you should acquire.

Posted in Centrelink, Income, Retirement

Centrelink benefits

Make sure you aren’t missing out! article by Tracey Roberts Financial Planner

Are you missing out on valuable Centrelink benefits because your assets aren’t correctly structured?  Sometimes, restructuring your assets can give you access to benefits like Newstart,  a pension card and/or part aged pension!

 Check with your financial planner to see if they can help or call Tracey Roberts at Foundation Planning Pty Ltd 07 5631 4343 or 0403 844 071 who wil be happy to have an obligation free chat (tracey_roberts@netspace.net.au).

 Here’s a couple of examples of what can sometimes be achieved.

Case Study

Reg (age 65) and his wife Carolyn (age 60) have the following assets:

  • Home – $300,000
  • Super – $380,000 (Reg}
  • Bank account – $10,000 (joint)
  • Car – $20,000
  • Home contents – $10,000

As Reg has recently reached Age Pension age and retired, he would like to apply for the Age Pension. Carolyn has been receiving Newstart Allowance for the past few years.  If Reg uses his entire superannuation balance to commence an allocated pension, he would be entitled to a part Age Pension of $448 per fortnight ($11,648 per annum). Carolyn’s Newstart Allowance would cease as their combined assessable assets now exceed the lower assets test threshold of $265,000*.

 Reg decides to cash in $170,000 of his superannuation benefits. This withdrawal will be completely tax-free^ as Reg is over age 60. Reg will then use this money to make a spouse superannuation contribution into Carolyn’s superannuation fund. Reg will commence an allocated pension with his remaining superannuation balance. As a result of this strategy, Reg & Carolyn’s assessable assets have been reduced by $170,000 to $250,000, which is below the lower assets test threshold of $265,000*.

 Reg will qualify for a full Age Pension of $564.50* per fortnight ($14,677 per annum).

Carolyn will continue to qualify for a full Newstart Allowance of $428.70* per fortnight ($11,146 per annum). This results in combined social security benefits of $25,438.40 per annum.  Further, while it is not likely to be applicable in this scenario, depending on their income position for the entire financial year, Reg may also be eligible for a spouse contribution tax offset of up to $540.

^ However, Flood levy of approximately $1,093 will apply.

* Rates and thresholds used are current to 31 December 2011. Rates include Pension Supplement for Reg.

Case Study

Sam (age 56) is single, owns his home, and has been unemployed for three months. His assets consist of the following:

  • $15,000 in the bank
  • $180,000 in managed investments (subject to deeming under the income test)
  • $75,000 in superannuation

As his assets (excluding superannuation) exceed the $186,750* asset test threshold, Sam is not eligible to receive any Newstart Allowance. Sam would like to receive some Newstart Allowance to help meet his living expenses and he is not averse to increasing his superannuation balance. He accepts his financial planner’s advice to make a $145,000 non-concessional contribution (using his managed investments) into his superannuation fund.  Following this contribution, the level of assets counted under the assets test is reduced to $50,000. The level of deemed income (from the managed investments) under the income test is also significantly reduced.

Sam is now able to receive the full amount of Newstart Allowance of $486.80 per fortnight*

or $12,657 per annum.

* Rates used are current to 31 December 2011.

Foundation Planning Pty Ltd

ABN 93 150 110 517

Authorised Representatives of AMP Financial Planning Pty Limited

Ph: 07 5631 4343 Fax: 07 5522 8836 Mob: 0403 844 071

PO Box 35, Mudgeeraba, QLD 4213

Posted in Centrelink, Investments, Retirement, Super

Age Pension

For many you will not even be considering whether or not you can receive the age pension as it may still be a few years away, however qualifying for just a dollar of age pension can entitle you to a health care card which is invaluable.  Also there are discounts on tons of everyday expenses such as Rates and registrations.

Whilst you may think you definitely wont qualify, there are measures that can be taken to put you in the best position.  We have a number of financial advisors we work with who have met with some of our clients already who thought they would be self funded and not eligible – however by reorganising finances they became eligible and now receive quite a few thousand dollars more a year.

 It is important to plan this, it is no use trying to do something about it when you have already reached age pension.

Here is some information regarding the age pension:

 Age of eligibility

  • Men born before 01/07/52 age 65
  • Women born 01/07/1947 – 31/12/1948 age 64.5
  • Both sexes born 01/07/1952 – 31/12/1953 age 65.5
  • Both sexes born 01/01/1954 – 30/06/1955 age 66
  • Both sexes born 01/07/1955 – 31/12/1956 age 66.5
  • Both sexes born 01/01/1957 and later age 67

You must be an Australian Resident who has resided in Australia for a continuous period of at least 10 years or has resided in Australia for a total of over 10 years of which at least five years was continuous.

 Income test

Visit the centrelink website for income test thresholds.

Income that counts towards the test are:

  • All investments – the ATO deems you are value from these (we had a client whose investments were negative but because he held them in a trust he did not qualify, together with his advisor they were moved into his own name and he then qualified.  We have also had other situations where this worked in reverse.)
  • Income from Rental properties, farms, private companies, trusts, partnerships, salary and wages, fees and royalties, compensation payments, foreign pensions, salary sacrifice contributions, leave payments and ETPs.

Asset test

Assets included are all investments, rental properties, farms, companies, trusts, partnerships, home contents, holiday home, cars, caravans, boats, antiques, stamp collections, jewellery and life insurance.

 There is a lot more involved than just ticking some boxes against the above.  For a few hours of your time it is worth contacting a adviser for a free consultation and asking the question.

 

Posted in Centrelink, Retirement

Social Security – Centrelink

Income for the retired

  • Retirement benefits include the age pension and the wife pension.
  • The partner of a pensioner who does not qualify for an age pension can apply for NewStart allowance, a carer payment or disability support pension, depending on his or her personal circumstances.
  • The age pension is available once you are over 65.
  • Generally you must have lived in Australia continuously for 10 years, at least five of these years in one period. Social security agreements with some countries may mean that residency of another country may count in this test.
  • The age pension is subject to both income and assets tests, unless the applicant is permanently blind.

 

Income support for the disabled and sick

  • Income support payments administered under this program include:

o   Disability support pension

  • People who cannot work due to illness or injury before they reach age pension age may qualify for this pension to bridge the gap to age pension age. In broad terms, if you are unable to work more than 15 hours a week in the next two years you will qualify for disability support pension. If you can work more than 15 hours a week you will qualify for NewStart allowance.
  • Applicants of this pension must be aged 16 or over and less than age pension age.
  • The applicant must have a physical, intellectual or psychiatric condition preventing them from working more than 15 hours a week.
  • The person must be unable to undertake education, vocational or on the job training likely to reskill them.
  • The person is required to undergo regular medical examinations.

o   Carer payment

o   Carer allowance

o   Sickness allowance

o   Mobility allowance

  • Income for the unemployed and students

o   Newstart Allowance

  • Payable to people who are temporarily unemployed and still of working age. People who retire before age pension age or who are retrenched may find this allowance useful.
  • Applicants must be prepared to enter into a preparing for work agreement and satisfy activity tests (attending interviews, training or community work of at least 20 hours a week)
  • This is subject to income and assets test

o   Austudy payment

  • Provides mature age students with income support while they study. Some retirees or pre retirees may wish to return to study to enhance their job prospects or for personal satisfaction.
  • Must be full time student aged 25 years or over and an Australian resident
  • Assets test applies

o   Widow Allowance

  • Provides a non activity tested income to a woman who was a member of a couple but has been widowed, divorced or separated.
  • Must be over age 50 and under age pension age, and have no recent workforce experience.
  • Income and assets tests apply.
  • Other benefits

o   Rental Assistance

  • Individuals who pay rent to a private body or landlord may be entitled to rent assistance.
  • This is non taxable and not counted as income for pension purposes

o   Concession cards

  • Pensioner concession card
    • This is issued annually to pensioners as well as to people over 60 who are receiving some other Centrelink allowances or benefits.
  • Commonwealth Seniors Health card
    • This card is available to people of age pension age who do not receive a pension
  • Health care card
    • This card is issued to people receiving NewStart Allowance and most other Centrelink payments where the cardholder is not eligible for the pensioner concession card.

You should seek financial advice from a financial advisor or speak to Centrelink direct regarding your personal circumstances

Plant and associates Pty Ltd

Suite 5, 39-41 Nerang St Nerang QLD 4211

Suite 4, 13 Cameron St Beenleigh QLD 4207

www.plantandassociates.com.au

Posted in Centrelink