OLD AGE PLAN
income: $40,000 for a couple (in 2002) or at least $75,000 in 2024
Target: AS AT TODAY’S VALUE, and
keeping in mind age pension rules, you need personal income after
retirement = $23,616 through investments/ earnings/ superannuation
pension (super that gives this amount @5% will be worth $472,320. This
can be facilitated by selling this house and moving to a small house. (Note
these are today’s values).
important to keep a superannuation target of
about $700,000 in 2024 to ensure that a reasonable amount at 2024
value and beyond is accrued.
Crucial reason to increase super and
purchase a complying pension. Usual allocated pensions are COUNTED for the assets test.
Complying pensions are not counted in the assets test applied by
Centrelink when assessing eligibility for the age pension. This market-linked
income stream is exempt to 50 per cent only, though. There is no way to save
meaningfully in any other way (ie. outside complying annuities) without seriously
affecting age pension (assets MUST remain below $217 500 excluding
income streams. Income
from the pension would be taxed as usual. Therefore by building super funds
for BOTH partners, both deductions can apply, reducing tax paid out, rather
than by keeping super only in one account.
Employees on incomes up to $28,000 who make their own
voluntary super contributions receive $1.50 per dollar of voluntary contributions
up to a maximum co-contribution of $1,500 per annum.
a) SM to make contribution of $1,000 and receive $1,500. Distribute
to ensure both partners have equal balances. Start by using all incentives
for this purpose.
b) Salary sacrifice upto $5,000
c) rest into mortgage.
BUT DO NOT BE DEFENSIVE.
USE THE SAME SUPER FUND. Super is risky. Use two different super funds. Use
an aggressive stock based option, despite cycles, to gain exposure to
TODAY = max. $26,000 with your own income stream of $6,000. Pension declines to 0 if
your own combined income is $114,116
See Detailed chart on pension as a function of income
(assuming assets test is met)
a full age pension over 20 years (65-85) is worth about $200,000 (ALL values
in black in 2004 values).
in Australia ie. December 2010 AND age 65 ie. 2023 /2024
PENSION - the lower of the
a) assets partnered (combined) up to $217 500 excluding
combined income < $5,616 per year
Note: if one partner dies, then the
assets and income test can adversely affect the other partner
OF $393.00* (for each member of the couple) per fortnight ie. $20,436 for the
indefinitely, rate reduced after 26 weeks. All other tests apply.
withdraw super funds if age 55 AND have retired. (Usually
superannuation cannot be paid out until you retire, (ie. you have a present
intention to never again become gainfully employed for 10 hours or more per
also access your superannuation savings in any of the following
reach age 60 and cease employment with all employers who have made
contributions to VicSuper on your behalf (even if you have not
turn age 65
benefits become payable to your dependants or estate.
become permanently incapacitated
meet the criteria for early release on the grounds of severe financial
compassionate grounds as approved by the Australian Prudential
Regulatory Authority (APRA)
you die and a benefit
is paid directly to your dependants,
· no tax is payable provided they take their
benefit as a lump sum within 3 months.
is payable on lump sum benefits paid to non-dependants (e.g. adult
children). This tax is generally deducted up to a maximum rate of
16.5% (including the Medicare levy) on the whole of the Post 30/6/1983
component. This rate applies even if the recipient of the benefit is
over age 55.
benefits are paid direct to the member's estate no tax is deducted by
the Fund. Instead, the estate pays tax as appropriate.
Can take back
lump sum at 55 to India, live off it till 65? Then get the age pension - must
retain permanent residency?
funds ~ $20,000
$120,000. Also expected that mortgage should be mostly paid off by then.
Super by age 65 around $333,000. (target $700,000!!)
can be done with that money?
retire this money is paid to you either as a lump sum or a superannuation
tax effective strategy
if super balance > $200,000
on lump sum withdrawals
purposes, superannuation benefits are split into several components. Each
of these components is taxed in different ways:
contributions - this is made up of your own contributions from
1/7/83. No tax is payable on this part of your benefit.
1/7/1983 taxed component-
· if you are under age 55, this component is taxed
at 21.5% (including the Medicare levy).
· If you are over age 55, the first $117,576.00
(for the 2003/2004 year and indexed annually) of this component is not
taxed and amounts over the threshold are taxed at 16.5% (including the
you receive a superannuation payment, you are taxed at a favourable rate.
There is, however, a limit to how much money you can receive at these low
rates of tax. This is called the Reasonable Benefit limit or RBL.
· If you take your superannuation benefit as a lump
sum, the RBL will be $619,223 (from 1 July 2004) or, if you take at least
50% of your benefit as a complying pension such as the SERF Fixed Term
Income, you can take advantage of a higher RBL ($1,238,440 from 1 July
· These amounts do not include your own after-tax
contributions such as voluntary savings or lump sum contributions.
effective if super funds >$200,000. Some of these pensions are EXEMPT
from the assets test.
Allocated pensions are designed for people who have retired, or
are approaching retirement age and want to leave their money in a super
fund so that they can draw a regular income stream rather than withdrawing
their money as a lump sum. With an allocated pension you can choose:
- how much you receive as income (within the minimum
and maximum limits that apply under current Federal legislation)
- to have your income credited to your account either
monthly, quarterly, half-yearly or yearly.
You continue to receive income payments until your super
savings and investment returns run out.
What are the tax advantages of allocated pensions?
investment returns within the fund
tax offset (rebate) on your income payments if you have no excess
benefits, and are either over age 55 or permanently incapacitated
· Annual tax free amount if you have undeducted
personal (after-tax) contributions, a capital gains tax-exempt component or
an invalidity component.
market-linked pension, payable for the life expectancy of the individual.
Lump Sum for Fixed (annuity) income
Must be For
Your Lifetime or Fixed Term of at least 15 Years for 65+
Exempt for Centrelink
advantages of a complying pension paid by these providers were offset by
the low rate at which these pensions were paid and the gamble on how long
the person receiving the pension would live.
amount of complying pension a person receives depends on the amount
invested in the fund, the life expectancy of the member, and an earning
rate applied. As the earning rate used for these pensions is a fixed
interest rate, the amount of complying pension paid has been a lot less
than other income streams because of low interest rates.
addition, if a member died before their estimated life expectancy, and
there was no guaranteed minimum period, the fund manager or life company
benefited from any funds remaining in the member's account.
super funds became a popular method of providing complying pensions when
the gamble over the member dying before they had reached their expected
life expectancy was removed. This was achieved by other family members
joining the self-managed super fund, so if there was still a balance in the
fund when a member died it was not lost to the family.
effect a complying pension paid by a self-managed super fund then had all
of the benefits of the new market-linked income stream pension.
A reverse mortgage
allows people aged 65 years and over to borrow against the equity in
their home and access cash without making repayments on the mortgage during
their lifetime. A reverse loan is typically repaid when the borrower dies or sells
the property to move elsewhere. Two major banks offer reverse mortgages, the Commonwealth
Bank and St George Bank.
charged on reverse mortgages is slightly higher than the big banks' standard
variable rates of lending. The interest rates are, however, lower than those
charged on personal loans.
Super as an
From 1 July 2005 employees
will have the right to choose the super fund into which their employer pays their
super contributions. Removal of the work test allows those under age 65 to
make contributions to a superannuation fund, regardless of whether they are
currently working or have ever worked. From 1 July 2005 people who have reached their
preservation age will be allowed to access their superannuation in the form
of a non-commutable income stream without the need to retire. This will give
people the option of continuing to work for their employer on a part-time basis
and use part of their superannuation to supplement their income, ensuring
they can retire when they are ready.
sacrifice. types of contributions you can salary sacrifice include:
- your regular salary
- any bonuses you may receive from your employer
- any allowances you may receive from your employer.
Set up an
agreement with your employer before you become entitled to the amount you
want to salary sacrifice. You should discuss:
amount of salary you want to sacrifice
the contribution is going to come from. Your regular salary? Bonuses?
your pre-sacrificed salary will be used to calculate any defined benefit
fund entitlement you may have.
may be no advantage to salary sacrifice if you’re:
earner (ie. earning less than $21,600 p.a.) as your income tax rates are
the same as those paid on super contributions. If this applies to you, you
may be better off making after-tax contributions, as you may qualify for a
government co-contribution of up to $1,500 a year, or
high-income earner (ie. earning over $99,710 p.a. in the 2004–2005
financial year) where the combined effect of the 15% tax on contributions,
the 12.5% superannuation surcharge (for the 2004–2005 financial year) and
taxes on benefits on payout may mean that the tax saving is limited.