3 ways to lift retirement income
Aussies are living 10 years longer than we did 50 years ago; we are also staying fit and active well into retirement. Expectations of retirement are also higher, whether that be overseas travel, learning a new skill or spoiling the grandkids.
Recent changes to boost retirement income may go at least some of the way to achieving your dream retirement and providing for a healthy, independent and good life in your later years. While there are some changes that affect self-funded retirees, the changes generally relate to those with Centrelink entitlements.
Here are the three main areas where changes have been introduced as of 1 July 2019.
Pension Work Bonus
If you receive the age pension or a Veterans Affairs pension, you can now earn up to $300 a fortnight (up from $250) without impacting on your Centrelink payment. Together with the income test free area of $174, this means singles can earn $472 a fortnight before your pension is affected.
The work bonus applies whether you are an employee or self-employed. And you don’t have to earn a maximum of $300 every fortnight. You can accumulate unused work bonus up to $7,800 (previously $6,500) and use this when you earn employment or business income in the future.
For instance, if you haven’t worked for a year, you accumulate $7,800 of unused work bonus. Then if you earn $4,000 for contract work over a six-week period, $4,000 of your accumulated work bonus (leaving a balance of $3,800) is used so your Centrelink payment will not be affected.
Not only can you improve your income, but you may also enjoy the stimulation of remaining in the workforce.
Pension Loans Scheme
Changes to the Pensions Loans Scheme mean that more people can tap into the equity in their home.
The fortnightly loan to boost income has been extended to apply to all age pensioners as well as self-funded retirees.
You can borrow up to 150 per cent (previously 100 per cent) of your maximum fortnightly pension rate to provide you with a better standard of living in retirement. The amount borrowed is secured by property you own in Australia.
The loan can be repaid at any time you choose, although it is recovered either when you sell the property or it’s sold from your estate (whichever comes first).
Currently retirees are charged a compounding variable interest rate of 5.25 per cent a year. The scheme is effectively a reverse mortgage facilitated by the government. Of course, such a loan will reduce your home equity, but it will give you added cash flow in the meantime.
New means testing of annuities
Changes have also been made to the treatment of pooled lifetime retirement income streams such as lifetime pensions, lifetime annuities both in and out of super and deferred lifetime annuities.
An annuity is a product where your money is pooled with other investors and a set amount is paid to you each year, usually for the rest of your life. The changes do not apply to account-based pensions or to annuities purchased before 1 July 2019.
Under the new rules, Centrelink will treat a fixed 60 per cent of all annuity payments as income. And for the assets test, it will assess 60 per cent of the nominal purchase price for the period until you are age 84 (for a minimum of five years) and after that 30 per cent for the rest of your life.
While the 60 per cent ruling may improve your circumstances, it won’t in all cases. If you have or are considering an annuity, give us a call to discuss what works best for you.
As the interest rate on annuities is set at the time of purchase, they are less attractive when interest rates are low. But there is an argument for investing part of your retirement savings in an annuity to give you guaranteed income on top of any Centrelink payments or a superannuation account-based pension that may not last your lifetime.
These three changes are all aimed at giving you additional sources of stable income in retirement. If you would like to know more, give us a call.
Ben Widdup
EGU | Financial Adviser