Are we working till we drop?

Many of us are coming to the realisation that our retirement dream is just that – a dream. Something that is elusive and perhaps not as attainable as we first thought it might be. We were looking at the world through rose-tinted glasses.

As a result – many of us may be confronted with having to modify our retirement plans. Rather than a luxury Winnebago in which to explore the great outdoors, we may have to ‘downsize’ our dream to a small caravan, a camper trailer, or even a two-person tent!

Perhaps, instead of our dream of a beach-front home – we may need to now look at smaller real estate, probably a street or two back from the beach, or even an apartment.

So how do we survive (and thrive) in an ever-changing world where the goal posts are constantly moving – sometimes due to changes in our own plans and circumstances, but often as a result of things which we have little, or no, control over. These include factors such as our health, the economy, changes to legislation and – even more frighteningly – the political instability of the world in which we live?

The answer lies in being adaptable. It means having the ability to change directions and travel down an altered path when life dictates a move in a different direction – or simply when we wake up one day and make the decision to travel via another fork in life’s road.

For many of us the realisation is that we may not be able to afford the type of retirement lifestyle we have always dreamt of.

So – what are the options?

If retirement is firmly on the agenda (through either choice or circumstance) the option may be to reframe our retirement objectives and pursue a more modest and affordable lifestyle.

However, for some, we may decide to continue to remain in the workforce a little longer than we may have intended – whether on a full-time, part-time, or casual basis. If we love what we do; continuing to work on a little longer may not be a difficult decision.

Of course; continued engagement in the work place delivers a number of benefits. Not only does it provide an opportunity to supplement, replace, or defer drawing down on our super and other savings – it provides an opportunity to remain engaged with other people, to deliver services to the broader community, and to pass on a lifetime of skills to the next generation.

However; there is a word of warning!

If remaining engaged in the workforce, whether it be part-time, full-time, casual, or even voluntary – we must ensure that we love what we do.

As is often said; if we love what we do we will never work a day in our life!

So – what are your plans for retirement? Does some form of continued workplace engagement beyond the ‘normal’ retirement date have a place in your plans?


Source:  Peter Kelly – Centrepoint Alliance

Loans and encumbrances; a pension minefield

For most people, being debt free in retirement is a priority. Others find the concept of ’good debt’ in retirement less stressful.

From an age/service pension perspective the correct structuring of good debt is important to ensure that any entitlement you may receive is not adversely affected.

When it comes to the Social Security Act – loans and encumbrances can be complicated and, in some cases, a little illogical. It is very important to understand that the taxation rules relating to debt are not necessarily the same as social security rules. For example; real estate investments can be considered.

So – let’s consider this real estate investment scenario:

An offer ‘too good to ignore’ comes your way and you decide to buy an investment unit down the road from where you live and rent it out. You then visit your bank (or your mortgage broker) to enquire about an investment loan.

The broker (or bank) are most impressed with you and decide that they will lend you the money to buy the unit. However; in addition to taking a mortgage out over the investment property they also need to secure the loan against your residential home as well.

From a taxation and a social security income perspective this is not an issue as (in both cases) the interest payable is deductible from the rent for the purposes of your tax and pension assessment.

However; there is one very important issue to consider. A person’s pension entitlement is also based on the value of their assets. The fact that the loan is secured against an exempt asset (family home), and an assessable asset means that the portion of the loan secured against the exempt asset (your home) is not used to reduce the asset value of the investment unit.

Care needs to be exercised here – as net rental income being received may not necessarily cover the reduction in a person’s pension in some circumstances.

When it comes to borrowing money to invest into shares or managed funds, the assessment side of things are slightly different.
The value of the asset shares, in this case, is reduced by the amount borrowed. For example – $50,000 is borrowed to purchase a parcel of shares valued at $100,000. Provided the loan secured against the shares – for the purposes of the assets test – the portfolio has a value of $50,000. The ‘hidden nasty’ here is that for the assessment under the income test, the whole value of the portfolio is viewed as a $100,000 share portfolio.
This is treated as a financial asset and it is this value that is subject to the relevant interest rates.

Unlike tax – the interest expense is not deducted from the income being deemed against the $100,000 portfolio.

“Oh…” I hear you say! And that is without even discussing the issues associated with loans to family trusts and companies, going guarantor, and associated loans.

When you are retired and receiving the Age Pension – borrowing and lending money (as well as going guarantor for loans taken out by your kids) can be a minefield with unwanted consequences.
So before you dive into the world of borrowing to invest – seek out the appropriate advice from an expert in the area.


Source: Mark Teale, Centrepoint Alliance