20 great ways the government helps retirees

Hi Brendan, can't see much help in that if you are past 66 and farming full time sell lambs at $200.
Cheers, Pete.

Some very interesting points, Brendan

The money smart retirement planner only allows me to change my retirement income by adjusting the age the super will run out

From that point of view it is not that useful

Hi Michael,

The ASIC Moneysmart Retirement Planner is not perfect - however I do think having a close look is worth it for a later life Australian trying to make some kind of plan for their retirement.

In your example of tweaking your life expectancy to work out how long your money will last based on your spending requirement is helpful - especially when the ASIC Moneysmart Retirement Planner does the number crunching around investment returns, inflation, and Centrelink eligibility. At least you now know when things could get tight - hopefully it is not for a long time!

Here are a few other things the ASIC Moneysmart Retirement Planner can help you get thinking about:

*Using inflation (2%) and a rate that takes into account a “rise in living standards” (1.2%) to “deflate” investment returns.
*Using investment return forecasts that may be more conservative than what fund managers may promise (dig into the assumptions to find these)
*Encouraging you to look at the ASFA Retirement Standard as a way to benchmark your spending.

In fact - you can work your way backwards from how the ASFA retirement standard (and a few other assumptions found in the ASFA website) to the lump sum is required to deliver a “modest” or “comfortable” standard of living in retirement for a single or a couple at age 66. It’s a great exercise (if you are numerate enough) to flex your muscles a bit in using this style of calculator - and should give you more confidence in using a calculator like this to make a plan.

The reality is that retirement spending is not linear, investment returns are not linear, not everyone has the same lifespan.

Also - retirement spending is funded from capital, investment returns, debt (such as the Pension Loans Scheme), as well as government help. Also consider that the age pension (which is included as INCOME) in the retirement planner, also allows a whole lot of support on the cost side - such as the 40 or so discounts, benefits, subsidies - whatever you call them, that can save thousands of dollars each year. The ASIC Moneysmart Retirement Planner has a long way to go in addressing all of this - let alone all the variations of wealth and situation that Australians in later life find themselves in.

So - it is not perfect, but it is the best start that is publicly available that I have come across.

If you can plan your retirement spending around what dividends you get - lucky you. For most it’s a complex mix.

And those that have the most complexity are amongst the government systems, and would have the least resources to get help.

Good tips IF you live in NSW (32%) anything for the 68%?

Cor, blimey - that's what I paid for. I'm envious.

Would burning a pile of cash be deemed "Deprivation of Assets & Income"?
https://guides.dss.gov.au/guide-social-security-law/4/1/3

Does SAPTO also help (ATO and hence government) ?

https://www.ato.gov.au/Individuals/Income-and-deductions/Offsets-and-rebates/Senior-Australians/

Dudley - I am not sure about this - it does read that you may actually continue to be assessed on the value of the burned cash.

A better idea would be to use the money to improve your home (which is not assessable) or spend the money on a holiday (as long as it makes sense in your long term plans).

A purchased asset would be assessable - although you would be well served to remember to keep Centrelink up to date with an appropriate value over time (see 5)

Brendan

Dudley and Brendan. This is THE reason why anyone with $400,000 to $800,000 in hard saved super assets have been called the "middle road kill group" and as a result of asset changes by Hockey and Morrison and therefore are out doing home improvements and cruise after cruise to get their assets down to $400-$500,000 and the full pension. For each $1,000 spent/reduced they get $78 a year in pension......

How to help retirees? More accurately titled "20 great ways the government helps old age pensioners" perhaps.

I find the ASIC retirement calculator incomprehensible and always have. If I end up with, say $1.4M and retire at 61, it projects an income of $60K - which eventually runs out and the OAP phases in from my late 70s, but then the balance after one year drops $55K. Even a conservative return on the balance at retirement would generate almost $50K, so you'd expect, given the tax free environment, the balance to drop not nearly so much. And the 4% mandated withdrawal is less than $60K.

It also doesn't allow for non-super assets, which makes it less than useful for most people.

Happy to be told I'm doing it wrong... and am missing something in my assumptions - while there's still time, but if, retiring at 61 on $60K tax-free, I ever need the OAP, then someone should beat me with a stick.

Geoff

This is not an easy task, when you consider all the variables in making plans for the future.

The calculator is very conservative. And it is “deflated”. That means inflation and allowance for increases in cost of living are taken away from the annual returns to allow the representation to be “in todays dollars”. The alternative is an income forecast that has a gradient - to take into account inflation.

Consider the assumptions in the calculator:

Conservative Return of 3.8% LESS fees of 0.3%

Then, the calculator takes into account inflation (2%), and increases in the standard of living (1.2%).

So after taking that away from a return of 3.8% - the “deflated” return is 0.2%.

This is not some crackpot number. This is what you get using a Government site. That is an 0.2% “real" long term return.

In this case, the $1.4m is only slightly moving ahead, while a drawdown of $54k pa is made - that lasts until 91 - at which point you will be solely relying on the age pension - and note that the Age Pension is likely to start helping you from Age 77.

What about assets outside of super? Well, consider that any income from your super is tax free. Then look at how much you have to earn to actually pay tax on funds outside of super - and this depends on whether you are eligible for the age pension, and whether the income is derived from paid work (see LITO. SAPTO and the work bonus). The actual minimum drawdown amount of 4% becomes less relevant, as inside super or outside super, you are unlikely to be taxed (for now).

This is why I think everyone should have some understanding of the Pension Loans Scheme - you assert that with $1.4m, and drawing down and spending $60k per year, if you ever needed the Centrelink Age Pension, you would expect to be "beaten by a stick"…conservative estimates say this could be the case. Between the age of 61 (when you retire) and 91 (when conservative estimates say your savings run out) - your home will have substantially increased in value. You may choose to draw down on some of that equity to fund lifestyle, instead of being forced to move (at 91), because you have run out of money. This is where a government run reverse mortgage scheme (i.e the Pension Loans Scheme) may be of help. This is something I encourage people to at least understand, to know it is there, in the very case that this modelling refers to. Surely it is a source of comfort knowing all the options? (And lets face it - the Government wants you to tap that wealth too)

And just to interrupt the linear style of these models - don’t forget unexpected capital drawdowns - expensive medical, a sudden urge to holiday, necessary home upgrades, bailing out children - this list is endless. These can really mess with your plans!

Further - in the event of needing aged care for you or your spouse (if you have one), a chunk of your savings may be needed to pay the Refundable Accommodation Deposit - which is not assessable for the Centrelink Age Pension test - and in this event you are assessed as an "illness separated couple" - eligible for the age pension as 2 singles as opposed to a couple. You will be very interested to know what you are eligible for at this vulnerable stage (or at least your children will).

I hope this helps. Planning for a lifetime is immensely challenging. I think an exercise like this is incredibly helpful - to understand the assumptions, tinker with them, imagine some potential events. There is so much analysis of companies and markets - what about analysis of you, the system, and how your life may pan out?

And on this - for all the complexity of these models - consider the input of market returns comes down to just a number, based on long term returns of different assets allocation strategies. This should indicate where the real work needs to be done…on planning for you, not your portfolio.


Brendan

Glad I'm retired and have enough time to work though this.