Age Pension – Page 4 – Adelaide Financial Advice

Age Pension – don’t set and forget!

October 12, 2017/in Financial Advice General Info /by Shellie Fisher

Applying for an age pension is not an easy task.

There is a comprehensive application form and depending on your circumstances, numerous documents that need to be photocopied and lodged as well.

If an application is successful and the age pension is granted, many age pensioners never want to deal with Centrelink again.

It is extremely important for age pensioner to remember they have a legal obligation to notify Centrelink, within a 14 day period, of any change in their circumstances or assets.

The following is not a full list of changes in circumstances but provides examples of events when a pensioner is required to notify to Centrelink;

buy or sell shares or managed investments
open new bank accounts
have combined assets of more than the amount currently being assessed
receive a lump sum amount or one-off payment, e.g. inheritance
move into or out of a nursing home, hostel or retirement village
are charged with an offence and placed in prison or admitted to a psychiatric institution
gift more than $10,000 worth of assets in an income year
changes their employment
travel overseas for a period of more than 6 weeks
marry, separate, divorce, or become widowed
rent or sell their home, or purchases another

Centrelink review the value of share and managed funds automatically twice a year, in March and September. However, to ensure an age pension is being assessed correctly, it is extremely important for pensioners to notify Centrelink if they buy new investments or sell investments to pay expenses, or to travel.

It is also important to remember that if you fail to notify Centrelink of changes in your circumstances and Centrelink discovers they have overpaid the pension, they will raise the overpayment from the date the change was effective. On the other hand, if Centrelink becomes aware of a person’s pension being underpaid because of a change which was not notified or notified late, they will only adjust the pension from the date they became aware of the change and not from when the change actually took effect.

So, what is the best way of keeping Centrelink informed? Going into the local Centrelink office, or speaking to someone on the phone can seem either too daunting or requires the patience of a saint.

The best place to start is to establish an online ‘myGov’ account and link your Centrelink account.

Source: Mark Teale | Centrepoint Alliance

At what age do I qualify for an age pension?

September 5, 2017/in Financial Advice General Info /by Fil-Battisti

coach Purses

Have a question about retirement? You’re in good company!

November 10, 2016/in Financial Advice General Info /by Shellie Fisher

When I speak with people who have either retired, or are planning to retire in the near future, there are some similar themes that emerge when it comes to the financial side of things.

There appears to be five key questions that regularly come up in the conversation.

Will we have enough money to enjoy our retirement?

Many people have an idea about what they would like their retirement to look like – where they would like to live, how they will spend their days, the type of car they would like to drive, and the places they would like to visit.

However not many people have considered just how much their ideal lifestyle will cost.

Sure, the government will pay the age pension, however that does not allow you to have a particularly ‘flamboyant’ lifestyle.

The maximum age pension for a single person is just $22,804 p.a., and for a couple it is $34,382 combined. To put this into context, the poverty line for a single person in Australia is $426 per week (pw), or $22,152 a year.

The latest figures in the Retirement Standard published by the Association of Superannuation Funds of Australia show that a modest retirement lifestyle costs a single person $23,767 per annum (pa), while the cost for a couple is $34,216. By contrast, a single person wishing to enjoy a comfortable retirement lifestyle will spend just on $43,000 – when a couple will be shelling out close to $60,000.

Will I ever be able to retire?

For those wishing to maintain more than a basic retirement lifestyle, some form of continued participation in the workforce after ‘normal’ retirement age is a decision some will be willing to consider in order to fulfil their retirement dreams.

However, undertaking work that generates an income in retirement doesn’t necessarily mean working the 9-to-5 grind from Monday to Friday. Work may be part-time, casual or seasonal. For some it may even mean self-employment – taking a hobby or a skill and turning it into a small business.

Retirement becomes a trade-off. If we have dreams of a certain lifestyle but don’t have the means to support it, it will either be a case of trading down our lifestyle – nobody wants to do that – or find a way to afford it.

In addition to providing a source of income – ongoing workplace participation provides a social outlet (and also helps to keep individuals mentally in check!).

What about the increasing costs of health care as we age?

It is a fact that as we age; we become more reliant on the health care system, and that all costs money.

For those who are eligible for a part or full age pension (approximately 2.5 million Australians) the Pensioner Concession Card provides access to a range of services including bulk-billed doctor’s visits, access to hearing services, reduced cost of pharmaceutical items, and a range of other concessions.

Even if you don’t qualify to receive an age pension, self-funded retirees of age pension age may be eligible to receive a Commonwealth Seniors Health Card which can also provide concessions for health care and pharmaceutical items.

We need to understand what benefits we are entitled to. Sadly, many Australians are missing out on accessing benefits and services that are freely available simply because they are unaware of their entitlements.

What if I run out of money?

This is a very real concern for many people as we don’t know just how long we are going to live, and that makes planning very difficult.

With life expectancy in Australia steadily increasing, retirement is likely to span 25 to 30 years for many. With the money we do have it must last a very long time.

Recent research has found that many Australians are actually under spending in retirement so as to ensure the money lasts.

Managing the retirement budget requires some careful planning. Some very good advice is available to assist in that process.

Even if you were to run out of money, the age pension is there to provide a safety net. Most Australians will be entitled to receive the age pension at some point during their retirement.

The government rightly expects people to use their own financial resources first, before drawing on the public purse. As a result, and as a consequence of an ageing population, we can expect to see government policy being tightened more to restrict the age pension, and other government welfare payments to those truly in need.

And that might include raising the age of entitlement at which we can begin receiving the age pension.

Will I be able to leave a legacy?

Being able to leave a legacy to children and grandchildren is something that many people earnestly aspire to. But, at what cost?

There are many stories of people living in poverty simply so they preserve their modest savings to pass on to the next generation who, are often living a far more luxurious lifestyle than their parents ever imagined.

While being able to leave something for the next generation is a noble ideal, I am sure that a significantly large proportion of potential beneficiaries would prefer to see their parents enjoy their retirement years.

Leaving a legacy would be wonderful ideal, but would your kids want you living on baked beans for the rest of your life? There has to be some balance.

Enjoying a comfortable lifestyle, and being able to afford it, is a very fine balancing act.

There is no simple answer, but perhaps the lesson is to start planning as early as possible, understand what entitlements are available, and seek the appropriate advice.

Source: Peter Kelly – Centrepoint Alliance

Is retirement a sustainable proposition?

September 1, 2016/in Financial Advice General Info /by Fil-Battisti

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Most Australians will be reliant on the government age pension to meet all, or a part, of their income needs for at least some of their retirement.

A small number of the population will remain self-funded retirees – for example; having no reliance on government funded income support (except for the Commonwealth Seniors Health Card).

However for the most part, at some stage in retirement, we will need to visit Centrelink and submit an application for the age pension.

The Australian age pension first became available to eligible folk once they turned 65 years of age – back in 1909. The Commonwealth age pension replaced pensions previously paid by the colonies (today known as our states and territories – before Federation).

However, the age pension is a relatively recent concept. It was in the mid-to-late 1800s that we started to see pensions introduced in parts of Europe by Otto von Bismarck, and for municipal employees (teachers, police, and firefighters), in the United States.

Like Australia – the American and European age pensions became payable to individuals once they reached a pre-determined age – generally between 65 and 70.

What was equally interesting was the fact that the average life expectancy at the time was around the same as the age of a person who would qualify for the age pension.

The governments back then worked on the theory they would only have to pay an age pension to those who survived until the qualifying age, and then it would only be payable for a relatively short period of time.

The Australian Bureau of Statistics estimated that in 2014 there were over 4,000 Australians aged 100 or older. This represented an increase of more than 260 per cent over the last two decades. In fact, today in Australia there are four living ‘super-centenarians’ (people who have lived up to, or over, 110!).

Even though we may not all live to be 100, Australians are living much longer than previous generations.

Today if someone passes away in their mid-to-late 70s it is seen as a tragedy that they died so young. Twenty years ago we would have said they lived a good and long life.

But what does a long life have to do with the age pension?

When the age pension was first introduced, it was designed to provide income in the final years of life when people were simply too old to work.

However today’s 65 year old is looking at 20 to 30 years of life ahead of them. Future governments simply will not be able to afford to pay an age pension to an increasing number of retirees who are living many years in retirement.

What might the future hold for retirement income and government support?

Expect to see the qualifying age for the age pension increase over time. The age has already increased to 67 for people born after 31 December 1956. There have been suggestions, and even draft legislation supporting increasing the qualifying age to 70.
Expect to use our own money first to support our retirement lifestyle and only then receive a government-funded age pension. Long gone are the days when we can amass large amounts of money in superannuation for the benefit of future generations.
Don’t be surprised if the value of the family home is included when determining eligibility (assets) test for the age pension.
We will all be working longer. Unless we have significant financial resources that enable us to fund our own retirement independently of the age pension, we will need to work longer.

If we desire a comfortable retirement that costs more than the age pension and our super may provide, some continued engagement in the workforce into our late 60s and even our early 70s may become a reality. Whether we remain an employee, or start our own business; and whether we work part-time or full-time; the options are endless.

Whatever we find ourselves doing – let’s make sure we enjoy it to the fullest.

Source: Peter Kelly – Centrepoint Alliance

Loans and encumbrances; a pension minefield

August 4, 2016/in Financial Advice General Info /by Fil-Battisti

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

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