Income in retirement
The rules constantly change, so how can you maintain your retirement income to provide you with some certainty?
Sandra*, now aged 69, retired at age 55. We provided advice to Sandra and her husband Neal at the time, and we established an investment strategy and portfolio that met all of their needs until a few years ago when Neal passed away. We revisited the investment strategy and made some changes that would deliver the required amount of income and also help Sandra maximise the age pension benefit that she commenced receiving when she turned age 65.
On 1 January 2017, Centrelink changed their method of calculating an age pension benefit based on the asset test. We met with Sandra in March 2016 to discuss the change and how it would impact her. At the time, we calculated that Sandra would be receiving $11,400 per annum of age pension benefit in December, and once the change was implemented this would reduce to $1,260 per annum, a difference of $10,140 per annum.
We recommended changes to Sandra’s investment strategy whereby she would invest some of her capital into two different annuities. The first annuity would pay her an income for the rest of her life, which could also be commuted (or cashed in) within 15 years. It would also pay a death benefit in the event that she died within 15 years. The second annuity was designed to pay income for the next six years.
Both annuities have special treatment under Centrelink’s asset test and income test, which meant that year-on-year, Sandra’s age pension benefit would increase quite significantly.
We implemented the changes to her investment strategy toward the end of 2016, and by the start of January, Sandra’s total income was at the same level as it had been prior to the Centrelink changes being made.
* Names have been changed to protect client privacy.
What to do next:
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Using a testamentary trust to protect assets and distribute income tax effectively