ISSUE 13 MARCH 2020
Retirement Affordability Index
™
Retirement traps
Forewarned is forearmed – retirees’ most common mistakes and how you can avoid them.
www.yourlifechoices.com.au
It’s difficult to be confident in uncertain times.
With less certainty in the world’s financial markets, making sure your money goes the distance is more important than ever. Take a look at your retirement income with fresh eyes and download Challenger’s Guide to Income in Retirement today. Visit challenger.com.au/incomeguide to get your guide.
Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670 (Challenger), the issuer of Challenger Guaranteed Annuity (Liquid Lifetime). This information has been prepared without taking into account any person’s objectives, financial situation or needs. Because of that, each person should, before acting on any such information, consider its appropriateness, having regard to their objectives, financial situation and needs. Each person should obtain and consider the Challenger Guaranteed Annuity (Liquid Lifetime) Product Disclosure Statement (PDS) before making a decision about whether to acquire or continue to hold the annuity. A copy of the PDS can be obtained from your financial adviser, our Investor Services team on 13 35 66, or at www.challenger.com.au. All references to guaranteed payments refer to the payments Challenger promises to pay under the relevant policy documents. Neither the Challenger group of companies nor any company within the Challenger group guarantees the performance of Challenger’s obligations or assumes any obligations in respect of products issued, or guarantees given, by Challenger. 41591/0320
Retirement journey in challenging times The world is in crisis. The coronavirus pandemic has countries in lockdown and states and territories of Australia closing their borders. Both state and federal governments have put together several stimulus packages – with special provisions for older Australians – in an effort to keep the economy and society functioning. We have seen the best and worst of people – from hoarders to caring and sharing families. YourLifeChoices has been producing an afternoon eNewsletter to keep members informed about the daily – sometimes hourly – developments. But it may now be the time to consider some longer-term retirement income strategies. The theme of this March edition of the quarterly Retirement Affordability Index is ‘Retirement traps’. It aims to help you make informed decisions throughout the often challenging journey that is retirement.
Contents Published by: YourLifeChoices Pty Ltd Publisher: Kaye Fallick Editor: Janelle Ward Copy Editor: Dairne John Writers: Matt Grudnoff, John De Ravin, Camille Schmidt, Bruce Manners, Janelle Ward, Ben Hocking Cover Design: Leon Della Bosca Designer: Word-of-Mouth Creative Email: admin@yourlifechoices.com.au Web: www.yourlifechoices.com.au Phone: 61 3 9081 9997 All rights reserved, no parts of this book may be printed, reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, recording or otherwise, without the permission in writing from the publisher, with the exception of short extractions for review purposes. IMPORTANT DISCLAIMER No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publication is distributed on the terms and understanding that (1) the publisher, authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, financial, professional or other advice or services. The publisher and the authors, consultants and editors expressly disclaim all and any liability and responsibility to any person, whether a subscriber or reader of this publication or not, in respect of anything, and of the consequences of anything done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no publisher, author, consultant or editor shall have any responsibility for any act of omission of any author, consultant or editor. Copyright: YourLifeChoices Pty Ltd 2020
How long will we live? Underestimating how long we will live is a risky business, writes Janelle Ward
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How living cost rises affected you Tribes’ expenses explained and updated
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Budget your way to confidence 7 Use our budget planner to keep your finances in order Is the system sustainable? Economist Matt Grudnoff queries the future of the retirement income system Are you in aged care denial? Challenger shares five surprising facts about aged care planning
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The pitfalls in failing to consider financial advice 12 SuperRatings’ Camille Schmitt explains the dangers in ignoring financial advice Homeowners vs renters in retirement 14 Actuary John De Ravin explores the outlook for retirees who own their home and for those who rent Entitlements and discounts Why you must fully understand all government assistance on offer
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A plan is pivotal Bruce Manners tells how to plan to protect your mental health in retirement
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Government update Stimulus payments, deeming rates, Age Pension updates and more
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YourLifeChoices Retirement Affordability Index™ March 2020
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The pros and cons of not having a crystal ball ‘Who would want a crystal ball?’ asks Janelle Ward. There would be too many things we wouldn’t want to know, but it would certainly help retirement planning.
T
hey had been dubbed the ‘golden years’, but for an increasing number of Australia’s retirees, the lustre is dulling.
Treasury’s Retirement Income Review is assessing the state of the system and what needs attention – with the help of hundreds of submissions from learned and authoritative bodies, including YourLifeChoices. But one element over which the government has no control is the increased longevity of Australians. We’re living longer and that life needs to be financed. Nest eggs need to be bigger and/or the Age Pension needs to offer a better standard of living than it does now.
Baby boomers are responsible for a rapidly ageing population. By 2055, the number of Australians aged 65 and over will have more than doubled, according to the Department of the Treasury.
Australians have a record $2.7 trillion in superannuation. The Australian Prudential Regulation Authority (APRA) says superannuation funds paid out $76 billion in retirement benefits in the 2019 financial year compared to only $50 billion in 2013. And as retiree numbers continue to increase, this growth rate is likely to continue.
But many older Australians face the prospect of outliving their retirement savings and, according to YourLifeChoices research, find planning for the cost of aged care Using averages masks a an unpopular pastime.
lot of the risks that real retirees face, and a lot of retirees are rightly anxious about outliving their savings. Jim Hennington
Retirement trap No.1 The difficulty in gauging our life expectancy is complicated by the fact that many financial advisers and planners are using longevity tables – actuarial measures that assess the financial risks of a long life – that should be amended to better reflect our longer lives.
And the Australian Government Actuary (AGA) tells us that if you are a 65-year-old male today, you can expect to live to 84.9; if you are a 65-yearold female, you can expect to live to 87.6. That’s another 19.9 years for a 65-year-old man today and another 22.6 years for a 65-year-old woman.
Actuaries Institute fellow Jim Hennington says the tables are used as the foundation for a lot of financial advice software, but recent research shows they too often use the average life expectancy as the basis for their modelling.
Extended projections do not end there. The AGA says that half of today’s 65-year-old males will live to at least 88 and half of today’s 65-year-old women to 90. And the longer we live, the longer we can expect to live. For example, a 90-year-old male today can, on average, expect to live to 94, and a female to 95.
“And about a third of retirees, once they hit 80 years old, do outlive their savings.”
Increased longevity can be attributed to medical advances, better healthcare and medicines, and improved education about our health. This means that we can lead more active and engaged lives for longer, assuming reasonable health. But this is where the good news becomes a little concerning for some. 4
“Using averages masks a lot of the risks that real retirees face, and a lot of retirees are rightly anxious about outliving their savings,” he says.
Mr Hennington says the models used to work out how much money retirees can afford to spend should set their age expectations much higher. He says a healthy couple made up of a 65-yearold man and a 62-year-old woman would need to assume the couple will live to the age of 100 – 16 years longer than most current models – to give them an 80 per cent chance of having enough savings.
YourLifeChoices Retirement Affordability Index™ March 2020
Retirement trap No.2 Dr Yuanyuan Gu, a senior research fellow at the Centre for the Health Economy at the Macquarie Business School, is another who says that longevity is heaping pressure on both retirees and society to finance retirement needs. Dr Gu collaborated on retirement income research with Dr Barbara Chambers from Monash Business School, Associate Professor Ruth Walker from Flinders University and Dr Jun Feng from the ARC Centre of Excellence in Population Ageing Research. Their paper, The Silver Tsunami: An Enquiry into the Financial Needs, Preferences and Behaviours of Retirees, examined retirees’ funding and spending, and the interaction between health status and financial planning for retirement. The paper says uncertainty drives retirees to seek protection from various risks, such as investment and longevity risks, but that a widespread fear of missing out (FOMO) “substantially reduces retirees’ desire for risk protection”. Dr Gu says: “Retirees greatly value leisure and actively maintain their health, but often miss opportunities to financially plan for future health and aged care needs. “In addition to ‘essential’ household expenses, lifestyle expenditures form a critical part of the household budget. “The transition from work to retirement means retirees have more time to participate in other activities but lose wage income. The transition often leads to changes in expenditures and tradeoffs. Some participants were concerned about the changes they needed to make to reduce spending when they retired.” YourLifeChoices disclaimer
Dr Gu says that many retirees believed prevention was more important than allocating resources for health-related needs in later years. “Rather than keep money aside for changes in health or independence, they feel the need to focus on maintaining their health and vitality while they can,” he says. “Instead of planning ahead for increased health costs, participants focus on an active lifestyle and healthy foods to maintain health.” And while that philosophy is sound, it still leaves many retirees anxious that they will run out of money. In YourLifeChoices’ Ensuring Financial Security in Retirement Survey 2019, 91 per cent of 3380 respondents said it was either very important or important that their income in retirement was guaranteed to last as long as they did. However, only 22 per cent said they were confident they could maintain their existing lifestyle to “average” life expectancy or beyond. The Silver Tsunami paper found most participants acknowledged that they needed to stretch income because of concerns about how long they would live, but had difficulty calculating safe spending. “Participants expect health spending to increase as retirement progresses but total spending to remain constant. Rather than plan for increased healthcare costs that result from frailty and infirmity in later retirement, participants would reduce other expenditures to meet increased healthcare expenses.” The challenge for the government and for the individual is how to offset a reliance on government support and convert retirement savings into an adequate and sustainable income. It is an ongoing challenge.
YourLifeChoices Retirement Affordability Index™ March 2020
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Tracking tribes’ cost-of-living increases
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he Retirement Affordability Index continues to track living costs as they relate to the six retirement tribes – even as the world implements strategies and restrictions to steer economies and communities through the coronavirus pandemic. In the December quarter, Cash-Strapped Couples and Singles and Constrained Singles bore the brunt of cost-of-living increases with a rise of 0.6 per cent. Constrained and Affluent Couples and Singles saw increases of 0.5 per cent for the quarter. The big contributors were food (led by fruit, which was up 6.8 per cent due to the drought at that time) and transport (led by automotive fuel up 4.4 per cent).
Weekly expenditure for retirees aged 54+ Expenditure items Housing As a percentage of expenditure Domestic fuel & power As a percentage of expenditure Food & non-alcoholic beverages As a percentage of expenditure Alcoholic beverages & tobacco products As a percentage of expenditure Clothing and footwear As a percentage of expenditure Household furnishings & equipment As a percentage of expenditure Household services & operation As a percentage of expenditure Medical & health care As a percentage of expenditure Transport As a percentage of expenditure Communication As a percentage of expenditure Recreation As a percentage of expenditure Education As a percentage of expenditure Personal care As a percentage of expenditure Miscellaneous goods & services As a percentage of expenditure Total weekly expenditure Total monthly expenditure Total annual expenditure 6
Affluent Couples
Cash-Strapped and Constrained tribes, which spend more on food, were hit harder by the rise in food prices. Affluent tribes, which spend more on transport, were hit harder by the increase in transport costs. There were small falls in international holiday and accommodation (-2.9 per cent) and garments for women (-2.5 per cent). And in good news for the current ‘apocalypse’, wine has fallen in price by 1.6 per cent. The uncertainty around our future will be so much easier to navigate with a glass or two of wine.
Constrained Couples
Couple Couple homeowners homeowners with private on Age income Pension $182.51 $107.87 12% 13% $45.06 $33.84 3% 4% $243.12 $171.24 17% (+1%) 20% $54.61 $28.50 4% 3% $31.04 $17.62 2% 2% $73.16 $31.74 5% 4% $42 $29.71 3% 4% (-1%) $146.9 $104.70 10% 12% $198.54 $128.88 13% 15% $35.1 $24.87 2% 3% $301.81 $102.49 20% 12% $0.6 $0.22 0% 0% $29.31 $17.79 2% 2% $89.48 $48.26 6% 6% $1,473.24 $847.73 +$7.70* +$5.07* $6,384.04 $3,673.51 +$33.36* +$21.97* $76,608.47 $44,082.08 +$400.26* +$263.56*
YourLifeChoices Retirement Affordability Index™ March 2020
Matt Grudnoff, The Australia Institute senior economist CashStrapped Couples Couple who rent on Age Pension $204.29 29% $35.72 5% $154.84 22% $46.23 6% $9.32 1% $19.31 3% $16.05 2% $36.25 5% $61.28 9% $26.92 4% $66.64 9% $0 0% $12.36 2% $24.13 3% $713.34 +$4.43* $3,091.16 +$19.21* $37,093.91 +$230.55*
Affluent Singles
Constrained Singles
CashStrapped Singles
Single Single Single who homeowner homeowner rents on Age with private on Age Pension income Pension $122.63 $90.51 $160.95 15% 19% 36% $32.59 $29.17 $24.76 4% 6% 6% $122.14 $85.85 $76.94 15% (+1%) 18% 17% $28.15 $16.39 $22.70 3% 3% 5% $20.65 $8.96 $7.39 2% 2% 2% $40.04 $18.59 $14.83 5% 4% 3% $37.89 $21.42 $11.38 5% 5% 3% $84.35 $37.35 $22.10 10% 8% 5% $105.17 $53.64 $36.17 13% (+1%) 11% 8% $33.97 $17.54 $13.68 4% 4% 3% $140.57 $52.88 $31.91 17% 11% 7% $0.13 $0.12 $0.01 0% 0% 0% $18.26 $9.63 $8.54 2% 2% 2% $54.31 $26.43 $16.47 6% 6% 4% $840.85 $468.46 $447.82 +$4.40* +$2.66* +2.71* $3,643.69 $2,030.00 $1,940.57 +$19.09* +$11.53* +$11.78* $43,724.24 $24,360.04 $23,286.83 +$229.04* +$138.36* +$141.36*
*Percentage and dollar changes compared with September quarter figures
Retirement tribes explained Affluent Couples and Singles Homeowners with private income.
How does your spending compare?
Constrained Couples and Singles Homeowners on full or part Age Pension.
Expenditure items
Affluent Couples
Constrained Couples
CashStrapped Couples
Cash-Strapped Couples and Singles Renters on Age Pension. Affluent Singles
Constrained Singles
CashStrapped Singles
Housing Rent, interest, home repairs and maintenance & body corporate fees As percentage of expenditure Domestic fuel & power Electricity, gas & oil As percentage of expenditure Food & non-alcoholic beverages Includes meals in restaurants As percentage of expenditure Alcoholic beverages & tobacco products Alcohol consumed at licensed premises As percentage of expenditure Clothing and footwear Dry cleaning, repairs & alterations As percentage of expenditure Household furnishings & equipment Outdoor furniture, floor and window coverings, linen and bedding, appliances, glassware, tableware and cutlery, tools & mobile phones As percentage of expenditure Household services & operation Cleaning and garden products, phone charges (including mobile), pest control & home cleaning services As percentage of expenditure Medical & health care Health insurance, doctor and dental fees, medicines and pharmaceutical products, prescriptions & hospital and nursing home charges As percentage of expenditure Transport Purchase, maintenance and insurance of vehicles, fuel & public transport fares As percentage of expenditure Communication Spending on telephone (including fixed line and mobile) Spending in internet services As percentage of expenditure Recreation AV equipment including TVs and pay TV, books, newspapers and magazines, camping and fishing equipment, sports equipment, internet charges, holidays & animal expenses As percentage of expenditure Education Primary and Secondary school fees (including school sport fees) TAFE and University fees (including HELP) Fees to all other private education institutions As percentage of expenditure Personal care Toiletries, cosmetics & hairdressing As percentage of expenditure Miscellaneous goods & services Stationery, watches and jewellery, interest payments on credit cards and all loans (excluding home loans), education, rates and charges on investment properties, accountant and tax fees & cash gifts As percentage of expenditure Total weekly expenditure Total monthly expenditure Total annual expenditure
YourLifeChoices Retirement Affordability Index™ March 2020
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The biggest trap of all – our entire retirement income system The day is drawing ever nearer when Australia must confront the fundamental problem with its retirement income system, writes senior economist at The Australia Institute Matt Grudnoff.
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ustralia has a policy blind spot when it comes to government support for retirement incomes and it’s one we will be forced to confront in coming years. When we do, it might create a number of retirement traps for the unprepared.
government education budget is expected to be $39 billion in the same year and the federal government health budget will be $86 billion.
I have a confession to make. I love those TV shows about hoarders. The ones where psychologists and professional cleaners come in to try to help those suffering from compulsive hoarding disorders. It is fascinating and uplifting to watch people overcome and change their lives for the better. But the real challenge for these people does not relate to the stuff they have collected. The real challenge they must overcome is in their minds. They must see the problem, acknowledge it and then want to change. You can usually tell at the start of a show if someone will succeed. Those who acknowledge the problem and want to change are more likely to succeed. Just like the hoarder in a house full of junk who can’t see a problem and insists that everything is fine, countries have blind spots as well. In the United States, it’s universal healthcare. Despite all the evidence from countries that have universal healthcare, the US insists it is unaffordable and unworkable. But Australia has its own policy blind spots. One is the retirement income system. There are all sorts of problems with the system, but as the Retirement Income Review set up by the government is about to find out, there are plenty of people who have a blind spot and will resist any change. The problems are clear. We have high rates of poverty in retirement. Of the 36 OECD (developed) countries, Australia has the sixth highest rate of poverty in retirement. At the same time, the government pours substantial sums of money into increasing retirement incomes. The Age Pension is one, but another is superannuation tax concessions. Combined, they are expected to exceed $100 billion next year. To put that $100 billion figure in context, the entire federal 8
This $100 billion does not include other government perks that are used mainly by retired people to prop up their incomes – such as excess franking credits. It doesn’t include other concessions not directly related to income, such as the Health Care Card. If the government is handing out so much money, why do we have such high rates of poverty in retirement? The simple answer is because we’re giving the money to the wrong groups. If you were starting from scratch and you decided to hand out $100 billion a year to help people with their retirement incomes, who would you give it to? You might give the most to those who had the least. You might think to hand it out equally. When it comes to super tax concessions and excess franking credits, we’re handing out the most to those who already have the most. Super tax concessions are worth $41 billion per year. The richest 20 per cent of retirees, who are not on an Age Pension or part pension, get 60 per cent of super tax concessions. The bottom half, those most likely to need help in retirement, get just 11 per cent of super tax concessions. Excess franking credits are even worse. They’re worth about $6 billion per year. When we look at who gets excess franking credits by wealth, the wealthiest
YourLifeChoices Retirement Affordability Index™ March 2020
20 per cent get 88 per cent of the excess franking credits, while the bottom half gets just three per cent. The Age Pension, which is means tested and targeted at lower income households, does not pay enough to keep some households out of poverty, particularly those who rent in retirement or who have a mortgage. Both these groups have been growing in recent times. But why will things have to change? Because both super tax concessions and excess franking credits are growing far faster than other concessions – far faster than the Age Pension and far faster than tax revenue. But here is where we insist that there is no problem. We tell ourselves that we don’t have to change, that those who keep pointing out the big piles of rubbish all around us are wrong. Over the nine years from 2014–15 to 2022–23, the Age Pension will grow at an average of 3.7 per cent per year. Super tax concessions will grow at an average of 7.8 per cent per year or more than twice the rate of the Age Pension. This means that the cost of super tax concessions will soon be larger than the cost of the Age Pension.
This presents one broad retirement trap and one very specific to excess franking credits. The longer something that is unsustainable continues, the bigger the correction required. If changes are not made now, it puts at risk bigger changes down the track that could have a greater effect on people who are about to retire or who have already retired. More specifically, to excess franking credits. These encourage retirees to overload their investment portfolios with domestic shares that pay large franked dividends. A diversified portfolio is always better for weathering uncertain economic times. An over-reliance on franked dividends leaves retirees exposed if there is a downturn in parts of the economy.
Excess franking credits are growing even faster, as shown in the graph at top right. They were worth just over $1 billion when they were introduced in 2001. By 2015 (the latest figures we have from Treasury) they were worth $6 billion. That’s a five-fold increase in 14 years.
Change is hard, but we need to acknowledge the problem before we can move forward. If we don’t, we end up sitting in a huge pile of rubbish convincing ourselves that nothing is wrong.
And almost all that growth in franking credits has come from individuals and self-managed super funds, as shown in the second graph top right.
YourLifeChoices disclaimer
YourLifeChoices Retirement Affordability Index™ March 2020
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Sponsored message from Challenger
Are you in aged care denial?
With an increasing number of retirees relying on aged care services, thinking about your options now could be a smart move. Challenger shares five facts that might surprise you when it comes to aged care planning.
N
o one likes to think about getting old. The ageing process brings many unknowns and it can be tempting to think ‘it will never happen to me’, hoping that you’ll never need help to get by. While optimism and staying active definitely have their benefits, ignoring the realities of old age could come at a price for your finances.
1
Demographic changes are driving the demand for AGED care services
Fact 1: We’re living longer than we used to Improvements in living standards and innovation in medical care mean that we’re living longer than ever. According to the Department of Health1, the number of Australians aged 85-plus is expected to grow by 35 per cent by 2029. Research2 shows that in the 25 years between 1992 and 2017, the most common age of death increased by 10 years to 88. Yet the average 65-year-old underestimates their life expectancy by almost five years3.
So, what does this all mean? If you’re 65 today, there’s a good chance you’ll live into your 90s. This might be good news for you, but bad news for your finances if you have aged care fees to cover. Average life expectancy Average life expectancy
From birth
From age 65
From age 65 with mortality improvements
Males
80
85
88
Females
85
87
90
3
Source: Australian Bureau of Statistics, Retirement and Retirement Intention, Australia, 2016-17 and Australian Life Tables 2010-12 with 25-year mortality improvement factors from the Australian Government Actuary.
2
Fact 2: We tend to underestimate the help we need You might feel fit and able now, but living until your 90s (or beyond) is likely to mean that you’ll need some sort of day-to-day assistance. If you don’t have the luxury of a family carer close by, you could well be calling on some kind of aged care service for support. The Australian Institute of Health and Welfare found4 that almost two thirds (59 per cent) of Australians aged 85-plus need some form of healthcare assistance. Heading into later life with a realistic view of the kind of help you might need can put your mind – and your finances – at ease.
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If you find the idea of losing your independence too daunting, it’s good to remember that aged care doesn’t have to mean moving into a residential facility. In Australia, there is a wide range of other options available to you – from home care support to flexible, short-term care if your family carer is away. You can find out about the different options on the government’s My Aged Care website.
Fact 3: Aged care fees are complex
Money is, of course, a key factor in what kind of aged care services you can afford, and research5 shows that many Australians underestimate the costs involved. Around two thirds of older Australians expect their future care costs to be around $400 per week ($20,800 p.a.) or less. If you’re considering residential care as an option, depending on your circumstances, you may also need to contribute towards the cost of accommodation. Aged care fees are complex, with both home care and residential care fees broken into several components. How much you’ll need to pay for aged care depends on the level of care and provider you choose, and an assessment of your finances. 1. D epartment of Health – 2018/19 Report on the operation of the Aged Care Act 19972 2. Australian Bureau of Statistics, Age at death data, 2018.3 3. N ational Seniors and Challenger, Outlook for Australian seniors’ retirement plans, August 2015. 4 4. Australian Institute of Health and Welfare – Australia’s Welfare, 2015.5 5. McCrindle Absolute Care & Health study 2018
YourLifeChoices Retirement Affordability Index™ March 2020
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Fact 5: There are ways to reduce ongoing care costs
The fee estimator tool on the My Aged Care website is useful and gives you some idea of the fees you may have to pay. Your actual fees will depend on your own circumstances. Aged care fees and charges Home care
Residential care (extraservice fees may also be payable)
Basic fee
$3475 p.a. − $3880 p.a.
Income-tested care fee
$0–$11,102 p.a.
Basic fee
$18,845 p.a.
Means-tested care fee
$0–$27,755 p.a.
Accommodation payment
Up to $550,000 (higher if approved by the Aged Care Pricing Commissioner)
4
Source: Department of Health – schedule of fees and charges for residential and home care from 1 January 2020
Fact 4: Timing is everything We tend to have a blind spot when it comes to planning ahead. Decisions around aged care are complex and emotionally charged, so it’s no wonder these conversations are often put off. But putting things off until your health is deteriorating could lead to hasty decisions that aren’t carefully thought through. Planning early is crucial if you want to take the time to weigh up all your options and, if necessary, find an aged care home you’re happy with. Just as important is starting conversations about aged care with family members early. Getting all opinions and expectations on the table with those closest to you leaves plenty of time to work through any potential areas of conflict.
If you’re planning to move into a residential aged care facility, you’ll need to make some decisions that could greatly affect your finances. And perhaps one of the biggest decisions is whether or not to sell the family home to help cover your aged care fees. The good news is that there are some strategies to help reduce the cost of ongoing care. What you do with your home, and how you invest, can all help to improve your cash flow, Age Pension entitlements, regular income or help to reduce your ongoing aged care fees. The key is finding the right strategy for you. Talking to a financial adviser could help you and your family work through all the different options, taking into account your broader financial plan and what assets you would like to leave your loved ones.
Access aged care resources The aged care system can feel complicated and stressful, but it’s good to know that help is on hand. To access easy-to-follow resources and find out more about the steps you need to take when planning for aged care, visit the Challenger website or call the Challenger team on 13 35 66. DISCLAIMER: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances. Before making a decision about whether to acquire or continue to hold a financial product, you should obtain and consider the Product Disclosure Statement (PDS) for the relevant product. A copy of the relevant PDS for a Challenger product can be obtained from your financial adviser, by calling 13 35 66, or at www.challenger.com.au
YourLifeChoices Retirement Affordability Index™ March 2020
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The pitfalls in failing to consider financial advice The financial services royal commission damaged trust in the sector, but SuperRatings’ Camille Schmidt explains the dangers in turning your back on financial advice.
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There is significant value in obtaining financial advice, however very few Australians access these services through their superannuation fund. When considering the type of investment option that suits you, there are several things to consider including your age, investment goals and risk tolerance. Accessing advice to ensure that the investment option you’re in is aligned to these characteristics is crucial. If you are more risk averse and try to avoid the ups and downs of the market, then being invested in an option with a lot of exposure to growth assets, such as Australian and international shares, may not be suitable. We have seen considerable market movements in 2020 and this reinforces the importance of this decision, as these markets can be volatile. A Conservative Balanced or Capital Stable option, which is less exposed to these asset classes, Growth in $100,000 invested over 15 years to 31 January 2020 $350,000
SR50 Growth (77-90) Index SR50 Balanced (60-76) Index
$300,000
SR50 Australian Shares Index SR50 International Shares Index
$250,000
SR50 Cash Index
$200,000 $150,000 $100,000
YourLifeChoices Retirement Affordability Index™ March 2020
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8
v-1
No
7
v-1
No
6
v-1
No
5
v-1
No
4
v-1
No
3
No
v-1
2
v-1
No
1
v-1
No
0
v-1
No
9
v-1
No
8
v-0
No
7
v-0
No
6
v-0
No
5
v-0
No
4
$50,000 v-0
Members now need to confirm annually if they wish to continue receiving advice services, and we have seen a greater focus on transparency with the regulator, the Australian Prudential Regulation Authority (APRA), releasing ‘heatmaps’ that show expensive and poorly performing funds. Wealth management arms of the big banks have been sold and the government has introduced new legislation, with Protecting Your Super and Putting Members’ Interests First bills that focus on changes to inactive accounts, fees and insurance. Across the industry, superannuation funds continue to merge, with more consolidation expected.
The importance of financial advice when selecting an investment strategy
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Recent events round out a period of significant change for the financial services industry. A spotlight was shone on the industry through the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which revealed poor conduct and had a severe impact on consumers’ trust. New standards took effect on 1 January 2019 through the Financial Adviser Standards and Ethics Authority (FASEA).
SuperRatings has researched superannuation funds for more than 17 years and has developed a methodology that assesses more than 300 characteristics of a fund. When SuperRatings analyses a fund, we consider the investment performance delivered with a focus on long-term periods, how much the fund charges and the insurance offering. We provide information on these areas at SuperRatings Top 10 site.
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1. $100,000 invested at the peak of the market, prior to the global financial crisis (GFC), is up around 80 per cent. 2. $100,000 invested at the depth of the GFC is up by around 121 per cent. 3. If you put $100,000 into cash at the bottom of the GFC and stayed there, your balance would now be close to $90,000 behind the median Balanced fund.
What makes a good super fund?
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W
e are in the midst of challenging times. The COVID-19 pandemic, coupled with oil price shocks, has caused turmoil in investment markets. When events such as these occur, it can be very stressful, but SuperRatings emphasises the importance of taking a long-term view. Looking back at previous events, such as the Ebola outbreak in 2018 or the SARS epidemic back in 2003, Australian super funds have proved relatively resilient to short-term market movements. Furthermore, it’s important to provide some context to these types of events, analysing the median Balanced Option, which has around 60 to 76 per cent invested in growth assets such as shares:
Source: SuperRatings
may give you more peace of mind. However, some members are comfortable with the ups and downs and would prefer to gain exposure to these asset classes to maximise their retirement savings.
Pension fees on a $250K account balance – Balanced Options
Fee as a % of $250K balance
Total
0.9% 1.1% 1.5%
$2280 $2862 $3788
Percentage- InvestmentMember based related fees fee administration fees and fee costs
The chart on page 12 shows the growth in a balance of $100,000 over the 15-year period to 31 January 2020. The type of investment option can have a significant effect on the balance you achieve in retirement, although it is important to consider the bumpiness of the ride in light of your risk tolerance.
Top quartile Median Bottom quartile
The table below provides summary performance for Balanced Options based on pension products, to provide an indication of the range in performance outcomes across the market. The top quartile indicates the highest performing funds, the bottom quartile is the cut-off for the lower performing funds, and the median represents funds that sit between highest and lowest returns.
This table summarises fee benchmarks for Balanced Options across the main accumulation products in the market, using an account balance of $50,000.
Pension return benchmarks – Balanced Options 1 Year 3 Years 5 Years 7 Years Top quartile 16.3% 10.8% 9.1% 10.5% Median 15.6% 9.9% 8.2% 9.7% Bottom quartile 14.2% 9.1% 7.2% 8.8%
10 Years 9.7% 9.0% 8.4%
*As at 31 January 2020. Based on SuperRatings’ SRP50 Balanced (60-76) Index containing pension options with growth asset ratios of 60% to 76%. * Returns are net of investment fees, tax and implicit asset-based administration fees. Annualised returns for each period are shown.
The table below provides a summary of the performance for Balanced Options based on superannuation products for members who are in the accumulation phase.
Accumulation return benchmarks – Balanced Options 1 Year 3 Years 5 Years 7 Years 10 Years
Top quartile Median Bottom quartile
14.6% 13.5% 13.0%
9.7% 9.1% 8.4%
8.3% 7.6% 7.0%
9.4% 8.8% 8.3%
8.7% 8.1% 7.8%
* As at 31 January 2020. Based on SuperRatings’ SR50 Balanced (60-76) Index containing superannuation options with growth asset ratios of 60% to 76%. * Returns are net of investment fees, tax and implicit asset-based administration fees. Annualised returns for each period are shown.
The importance of financial advice in assessing fees and charges Considering the fees charged by funds is also important. This following table summarises fee benchmarks for Balanced Options across the main pension products in the market, using an account balance of $250,000. The top quartile indicates the cheapest funds, the bottom quartile is the cut-off for the more expensive funds, and the median represents funds that sit between cheap and expensive in terms of fees. The following table shows that there is a considerable range in fees being charged by funds, with the most expensive 25 per cent of funds charging $3788 or more, compared to $2280 or less, for the least expensive 25 per cent of funds.
$0 $78 $100
0.19% 0.31% 0.61%
0.57% 0.80% 0.96%
* Fees used in the analysis are as at 31 January 2020, using most recent data available to SuperRatings at the time of preparation. Fees include percentage-based administration fees, member fees, investment management fees (incl. performance-based fees), indirect cost ratios (ICRs) and taxes, but exclude any applicable employer rebates.
Accumulation fees on a $50K account balance – Balanced Options Top quartile Median Bottom quartile
Fee as a % of $50K balance
Total
1.0% 1.2% 1.5%
$513 $588 $740
PercentageInvestmentMember based related fees fee administration and costs fee $58 $78 $91
0.14% 0.26% 0.56%
0.61% 0.78% 0.95%
* Fees used in the analysis are as at 31 January 2020, using most recent data available to SuperRatings at the time of preparation. Fees include percentage-based administration fees, member fees, investment management fees (incl. performance-based fees), indirect cost ratios (ICRs) and taxes, but exclude any applicable employer rebates.
Accessing financial advice To ensure you have access to sufficient information to drive the best retirement outcomes, SuperRatings suggests contacting your superannuation fund to find out what advice services are available. The government provides information on how to select a financial adviser through the MoneySmart website. You can also find useful tips at https:// www.moneysmart.gov.au/investing/financial-advice/ choosing-a-financial-adviser. Amid challenging market times such as these, review your financial situation and seek input from your fund or an adviser to see whether you’re on track. Such a move can also provide peace of mind and help provide comfort to ride out this period of ups and downs. Camille Schmidt is market insights manager at SuperRatings. She has a PhD in finance from Macquarie University. DISCLAIMER: Report issued by SuperRatings Pty Limited ABN 95 100 192 283 AFSL No. 311880 (SuperRatings) The information used in compiling this data comes from sources considered reliable and is not guaranteed to be accurate or complete. Past performance is not a reliable indicator of future performance. Any expressed or implied rating or advice presented in this document is limited to General Advice and based solely on consideration of the merits of the superannuation financial product(s), without considering any person’s particular financial circumstances. The reader should read the Product Disclosure Statement and seek personal advice before making a decision on the financial product. SuperRatings’ research process relies upon the participation of the superannuation fund or product issuer(s). Should the superannuation fund or product issuer(s) no longer be an active participant in SuperRatings’ research process, SuperRatings reserves the right to withdraw the rating and document at any time and discontinue future coverage of the superannuation and pension financial product(s). © SuperRatings Pty Ltd. All rights reserved. This report may also contain third party material that is subject to copyright. To the extent that copyright subsists in a third party it remains with the original owner and permission may be required to reuse the material. Any unauthorised reproduction of this information is prohibited.
YourLifeChoices Retirement Affordability Index™ March 2020
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Homeowners vs renters in retirement, by the numbers Retired actuary John De Ravin explores the outlook for retirees who own their home and for those who rent. “
Y
our home is your castle”, according to the old saying, and Aussies really take that to heart, more than the residents of just about any other nation on earth.
Some of the advantages of home ownership are obvious. For one, if you own your home, you’re not at the mercy of a landlord who can turf you out, or increase the rent at the end of each lease period, so owning your home means security of tenure. Also, if you own your home, you can decorate and renovate it as you see fit without needing to seek anyone’s permission. And there’s that indefinable feeling of attachment to a piece of physical earth, and a building, that brings comfort. But apart from those advantages, there are two benefits of home ownership that are distinctive to Australia. First, your ‘principal residence’ is an important exemption from our capital gains tax (CGT). Even if you sell your home for twice, five times, or even 10 times what you paid for it, you won’t normally pay a cent in CGT. The CGT exemption contributes to home ownership being a great investment. But the other thing, which is especially relevant for retirees and pre-retirees who hope to receive a part or full Age Pension, is that the Age Pension means testing arrangements in Australia are very generous to homeowners. In fact, regardless of how valuable your home may be, it isn’t counted in the assets test. You can own a $5 million home and, as far as Centrelink is concerned, that asset is worth precisely $0 when it comes to the assets test.
Case study: Bill and Mary Bill and Mary are 66. They are both recently retired. Because Bill’s employment involved many relocations, they never bought their own home. However, they have lived modestly and contributed to super, so they have built a decent financial asset base of $850,000, entirely in superannuation. Now that Bill and Mary are no longer employed, they want to settle down and stay in one place for many years, near their children and grandchildren. They are trying to decide whether to rent or buy. 14
Let’s compare their situation according to whether they decide to buy or rent. The table below shows their income and expenses if they rent, compared to if they buy a property for $600,000, leaving $250,000 with which to take out account-based pensions. Item of income or expenditure
BUY
RENT
Income from account-based pension
$12,500 $42,500
Age Pension
$36,582 $16,692
Rental Assistance TOTAL INCOME Rent
$0
$3380
$49,082 $62,572 $0 $24,000
Other property expenses (rates, insurance)
$3000
TOTAL PROPERTY EXPENSE
$3000 $24,000
NET INCOME TO SUPPORT LIFESTYLE
$0
$46,082 $38,572
To prepare the table, it’s necessary to make some assumptions about the rent they would pay to live in a $600,000 property equivalent to the property they are thinking of buying. I’ve assumed they would pay an annual rental of four per cent of the property value. I’ve assumed that if they own their own home, they will have to pay annual rates and buildings insurance of $3000 that they would not have to pay if they choose to rent. And finally, the table assumes that whether they take out an account-based pension with $850,000 (if they rent) or $250,000 (if they buy a home), they will draw down on their account-based pension prudently at the statutory minimum rate of five per cent per annum (as many Australian retirees do). The Age Pension entitlements in the table assume they own $10,000 in non-financial assets as well as their financial assets. So, you can see that Bill and Mary are much better off if they own a home. The main reason is that they get much more Age Pension if their assets are in their home (where they don’t count against the assets test) than if all their assets are held in their account-based pensions (where their assets are fully asset testable). Effectively, Bill and Mary will
YourLifeChoices Retirement Affordability Index™ March 2020
receive an additional $16,510 in total Centrelink benefits (Age Pension plus Rent Assistance). Also, as owners, they will not have to pay rental expense. The upshot is that if they own their home, they will have $46,082 to support their lifestyle, but if they rent, they will have only $38,572. In other words, they will have 19 per cent more to spend on their lifestyle (other than their property expenses) if they choose to buy than if they rent. What’s more, the Age Pension is payable by the Australian government, and will be indexed to average weekly earnings, whereas their main source of income, should they keep all their assets in their account-based pensions, will be subject to the vagaries of the investment markets. Typically, their house will continue to grow in value, and will form a large part of their bequest to their children or other beneficiaries, whereas the balance of their accountbased pensions is likely to decline over time, especially if they survive beyond their mid-80s.
But what if you can’t buy a home?
1. Continue in the workforce longer to save, inside or outside superannuation, with a view to having enough to buy a house by the time they retire. 2. Consider moving to a less expensive location (perhaps a rural or regional location) if that means they will be able to afford to buy a home. 3. Undertake a little part-time work in retirement – but avoid earning more than the income test free threshold. 4. A non-homeowner couple should ideally target a level of assets, by the time the couple is eligible for the Age Pension, of about $650,000. Nonhomeowner singles could consider targeting an asset level of $550,000. While you will not receive a full pension if your assets exceed these levels, you would get almost the full Age Pension. 5. If you can’t afford to buy a home, consider moving to a location where rents are not too high a proportion of your Age Pension. Without a home, your lifestyle in retirement will be a bit more financially constrained, but a bit of part-time work and the right level of assets should produce a satisfactory lifestyle, even though you will have to continue paying rent.
We saw above that life is financially more comfortable for couples who own their home once they reach Age Pension age (and the same applies to single Age Pensioners). If a couple, such as Bill and Mary, don’t own their home as they approach retirement but do have the financial assets to buy a home, it’s not too late. There is nothing to stop them from buying a home shortly before or shortly after they retire, and then collect the larger Age Pension that they may thereby be entitled to.
John De Ravin is a retired actuary and author of Slow and Steady: 100 wealth building strategies for all ages. Slow and Steady, available from johnderavin.com, explains the key financial strategies that can help pre-retirees and retirees prepare for and enjoy the best retirement possible.
But what about couples who are approaching retirement, but who don’t own a home and don’t immediately have the resources to buy one? Here are some of the strategies such a couple might consider.
DISCLAIMER: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.
YourLifeChoices disclaimer
YourLifeChoices Retirement Affordability Index™ March 2020
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Don’t miss out on these entitlements and discounts If you fail to fully understand all the government assistance available, you’re falling into a trap. Ben Hocking outlines the allowances that may make a big difference to your retirement.
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he rules associated with retirement income, and the Age Pension in particular, are complex. It is vital that you fully understand how they will be applied to your situation. Retirement is definitely a time for careful planning and being well informed about what is available.
of income, such as from superannuation or employment. Recipients of the Age Pension may be able to receive additional payments such as Rent Assistance, the Pension Supplement and the Clean Energy Supplement. These are fortnightly or lump sum payments to help with rent and bills.
Whatever your situation, it is important that you know the options available and the services that Recipients of the Age Pension are entitled to can assist you. It is also important concessions through the that you carefully consider the Pensioner Concession Card. A Pensioner Concession decisions you may need to make People receiving the Age Pension in retirement. Card entitles you may be eligible for more than one There is income support, health and type of payment. For example, you to reduced-cost aged care, seniors’ cards, financial may be eligible for both the Age medicines under planning, superannuation, housing Pension and the Carer Payment. and rent assistance – to name just the Pharmaceutical You can find out more about a few. And to find out about each Benefits Scheme. Age Pension eligibility on the topic, you have to contact a different YourLifeChoices website. government department or service. Research and planning will assist you to make the most of the entitlements and responsibilities that come with retirement. Centrelink is one of the agencies (Medicare and Child Support the other two) that operates under the banner of Services Australia and is responsible for assessing eligibility and the payment of social security benefits. Older Australians have the right to claim income support as they age. Eligibility for payments is subject to certain criteria. A person’s age, residency in Australia and level of income and assets is taken into account in determining eligibility and the rate of payment. For couples, combined circumstances are taken into account.
Age Pension The Age Pension is a fortnightly payment providing income support to eligible Australians. For some, the Age Pension is the sole source of income in retirement. For others, the Age Pension can be used to supplement other sources 16
Carer Payment The Carer Payment is an income support payment for eligible carers providing constant daily care in the home of a person aged 16 or over with a severe disability, a medical condition or who is elderly and frail. The Carer Payment is intended for people whose care responsibilities mean that they are unable to work in substantial paid employment. Recipients of the Carer Payment may be eligible to receive additional support through Rent Assistance, the Carer Supplement and the Clean Energy Supplement. These are fortnightly or lump sum payments to help you pay rent and bills. Recipients will also be entitled to a Pensioner Concession Card.
Carer Allowance The Carer Allowance is a supplementary payment for eligible carers who provide daily care in their home or in the home of a person aged 16 or over who has a disability or medical condition, or who is elderly and frail.
YourLifeChoices Retirement Affordability Index™ March 2020
The Carer Allowance is different to the Carer Payment because it is not means tested, therefore your income and assets do not affect your eligibility. This means that if you are eligible, you will receive the Carer Allowance no matter what other income you receive. It is available to people who are working, self-funded retirees and people receiving income support payments. These can include the Age Pension, the Carer Payment or a pension from the Department of Veterans’ Affairs.
Grandparent Child Care Benefit The Grandparent Child Care Benefit is available to eligible grandparents who are the primary carers of a grandchild or grandchildren. The benefit covers the full cost of childcare for up to 50 hours for each child in approved care each week. To be eligible, a grandparent will need to be the natural, adoptive or step grandparent of the child, a great-grandparent or their partner and the primary carer of the grandchild. You must be in receipt of an income support payment such as the Age Pension or Carer Payment.
Rent Assistance You may be entitled to Rent Assistance if you pay rent for private accommodation and receive a Centrelink payment, including the Age Pension or Carer Payment. Rent Assistance can be provided to people in residential care facilities if these facilities are not already subsidised by the Australian Government.
Pension Loans Scheme The Pension Loans Scheme (PLS) allows people of Age Pension age to access a regular income from a loan that is secured against any property owned. While the overall maximum you can receive is 150 per cent of the maximum rate of the Age Pension, your actual limit will depend on your age, how long you intend to receive payments, whether you are single or have a partner, the value of your home and how much Age Pension you receive. The formula is conservative to ensure participants do not borrow more than their home is worth. The PLS is an alternative to a commercial reverse mortgage or equity release scheme.
Seniors Card A Seniors Card offers concessions on a variety of goods and services, including government services, transport and shopping within your state or territory. You can use the Seniors Card across Australia, but some restrictions may apply. The card is free, but you must apply.
Commonwealth Seniors Health Card The Commonwealth Seniors Health Card is for Australians who have reached Age Pension age, but do not receive a Centrelink payment. Eligibility depends on your annual income. This card may entitle the holder to additional refunds for medical expenses and greater discounts on prescription medicines.
Pensioner Concession Card The Pensioner Concession Card is for recipients of the Age Pension. It is also available to people receiving some other payments, including Carer Payment and the Disability Support Pension. A Pensioner Concession Card entitles you to reduced-cost medicines under the Pharmaceutical Benefits Scheme (PBS). You may also be entitled to various concessions from the Australian government. These could include: • bulk billing for doctor’s appointments (this is your doctor’s decision) • more refunds for medical expenses through the Medicare Safety Net • assistance with hearing services through the Office of Hearing Services • discounted mail redirection through Australia Post. You may also be entitled to various concessions from state and territory governments and local councils – these could include: • reductions on property and water rates • reductions on energy bills • reduced fares on public transport • reductions on motor-vehicle registrations • free rail journeys. Pensioner Concession Card concessions are different in each state and territory and vary between local councils. DISCLAIMER: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.
YourLifeChoices Retirement Affordability Index™ March 2020
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Why a plan is pivotal to protect your mental health So much of retirement is focused on the finances – as it should be. But, as Bruce Manners points out, if you fail to plan, your mental health can suffer.
I
’ve seen up close and personal the complications that can occur when an individual retires without a plan. We were shifting, for my work, from up Newcastle way back to Melbourne. Halfway down the Hume Highway, Margie, my wife, announces she’s going to retire. No surprise there, she’d been mulling over the decision for quite some time. She was a diversional therapist in aged care and, to her mind, the industry had become over-regulated and restrictive to the point where she spent more time at her desk than on the floor with residents (the part she enjoyed most). “So, what are you going to do?” “I don’t know.” That uncertainty lasted for about 15 months. It took her that long to work out who she was and what she wanted to do in her retirement. It was as if she was lost and without direction. It frustrated her. She now has an active, involved, creative and enjoyable retirement. And she allows me to tell her story whenever I think it will help others. This is one of those times.
Anxiety and depression I asked a clinical psychologist friend what she thought could be the major problem for those who retired without planning. “Anxiety and depression,” was her immediate answer. Of course, there would be anxiety if retirement were merely a black hole. Where do you start? How do you negotiate this with your partner, if you have one? What will you do with the next 20 or 30 years of your life? It takes time to work through issues such as these. This could easily lead to depression. I had seen anxiety and some depression in Margie –along with the frustration of not knowing who she was or what she was meant to be doing.
Good transitions need good planning Retirement is a major life transition. Actually, getting to retirement means you have already gone through 18
several life transitions. These can include: home to school; high school to the workplace, a trade or university; marriage; divorce, perhaps; children, and so on. At retirement, we’re already experienced ‘transitioners’. That’s a bonus, but the transition to retirement is easier when it’s planned. Nancy Schlossberg, in her book, Too Young to be Old, points out that the transition to retirement brings changes in your “roles, relationships, routines and assumptions.” Assumptions? Yes. You don’t really understand what parenting is like until you experience it. And you won’t really understand your retirement until you actually get there, but planning for it helps give it structure. “It can be difficult, even painful, to experience change,” writes Professor Schlossberg. “But avoiding it is not an option…. The basic question is how you embrace your transitions.” That’s more than a ‘what will you do’ question, it’s also a mental health question.
Planning puts you in control Tim Carey, Professor of Clinical Psychology at Charles Darwin University, says “psychological distress is experienced when people feel unable to control their thoughts, actions, emotions or some other aspect of their day-to-day living.” He suggests that “control over life circumstances reduces chronic stress and has favourable biological effects.” Crucial to the notion of control is the ability of people to lead lives they have reason to value. “What is important is not so much what you have, but what you can do with what you have.” Planning your retirement gives you control and helps to make it your retirement. It’s personal – and it should be.
Living on purpose takes planning Purposeful living is important for a successful retirement. That’s the finding of Michael Longhurst
YourLifeChoices Retirement Affordability Index™ March 2020
The WHO on mental health
in his book, Enjoying Retirement. It comes from his Retire 200 study, an in-depth study of 200 Australian retirees. “It makes sense that those who keep themselves busy will fare better emotionally than those who lie around doing nothing,” he says. And, if an activity has a purpose, it will prove to be more rewarding. In a sense, you take your purpose with you into retirement, but changes come with your new status. It’s best to think those things through before you get there, so you can hit the ground running, while being flexible when needed. In writing Life on Purpose, Victor Stretcher found that “the strength of one’s life purpose – which involves a combination of living according to your values and goals, and striving to make a positive difference in the world – can be measured ... it correlates highly with psychological wellness.”
Your plan needs to be your plan As a child, you may have tried wearing a parent’s shoes and they would have slopped around or tripped you up. It’s fun to play like grown-ups as a child. As an adult, it’s time to be who you are. You would make a poor someone else. Gustavo Razzetti, on the Psychology Today website, says, “No one knows yourself better than you do. No one but yourself can choose how you live.” He warns that it’s too easy to lose control of our lives through social pressure and envying other people’s ‘perfect lives’. That simply leads to frustration because you aren’t being true to yourself. Mr Razzetti advises: “You are in charge. Love your life. Accept the worst and hope for the best.” YourLifeChoices disclaimer
According to the World Health Organisation, “mental health is a state of wellbeing in which an individual realises his or her own abilities, can cope with the normal stresses of life, can work productively and is able to make a contribution to his or her community.” Note the four elements to mental health here: realising your own abilities, coping with the normal stresses of life, working productively and making a contribution to your community. As you look at your retirement, you could ask how well you’re planning in these areas. Then you could work out how you will make sure you have this kind of balance in retirement.
Is it too late for me? If you haven’t planned for retirement and it’s only a few weeks or days away, or you’ve just had it thrust upon you, what can you do? First: Don’t panic. You can still create something great in your retirement. Second: Take the time to create a plan. Don’t just settle on a lounge in front of the TV. This is time for pen, paper and thinking. Third: Think about this time of life in bite-sized pieces. Start with planning the first six months (that’s usually quite easy). Then think about the first year. Finally, when you’re ready, the first five years. It’s never too late to plan your retirement, but the earlier you start, the better – for you and your mental health. Bruce Manners has a PhD in sociology and ‘retired’ at the end of 2014 after working as a commercial fisherman, church pastor and magazine editor. He has written several books, including Retire Ready? and operates the retirement website retirenotes.com.
YourLifeChoices Retirement Affordability Index™ March 2020
19
Government update YourLifeChoices keeps you up to date with government changes that could affect your retirement. Stimulus payments
Deeming rates
Pensioners have been allocated cash payments as part of the federal government’s stimulus packages in the wake of the coronavirus pandemic.
Centrelink determines Age Pension payments and eligibility by assessing income and assets under each of the means tests. Income deemed by Centrelink to be received from financial assets is taken into account.
In the first package, about 2.5 million pensioners, 680,000 JobSeeker – or Newstart – recipients and all those receiving a Carer’s Allowance were eligible to receive $750 from 31 March. In a second package, an additional $750 is to be made automatically to about five million Australians, including those receiving the Age Pension, a Carer’s Allowance or family tax benefit and Commonwealth senior card-holders, from 13 July.
Age Pension payment rates On 20 March, the Age Pension payment rates were increased and income and asset thresholds changed. This means some people who were previously ineligible for a pension or a concession card may now be eligible. Maximum fortnightly Age Pension payment rates Previous Current Increase Single Base $850.40 $860.60 $10.20 Supplement $68.90 $69.60 $0.70 Energy Supplement $14.10 $14.10 — Total $933.40 $944.30 $10.90 Couple (each) Base Supplement Energy Supplement Total
$641.00 $51.90 $10.60 $703.50
$648.70 $52.50 $10.60 $711.80
$7.70 $0.60 — $8.30
Pension Disqualifying Income Limits from 20 March Situation For full pension For part /allowance pension (pf) (per fortnight) Single up to $174 less than $2062.60 Couple (combined) up to $308 less than $3155.20 Illness separated (couple combined) up to $308 less than $4085.20 Centrelink asset test limits for Allowances and full Age Pensions from 1 July 2019 Situation Homeowners Non-homeowners Single $263,250 $473,750 Couple (combined) $394,500 $605,000 Illness separated (couple combined) $394,500 $605,000 One partner eligible (couple combined) $394,500 $605,000
20
In response to a series of cuts to official interest rates by the Reserve Bank of Australia and the government’s response to the coronavirus pandemic, deeming rates have been lowered twice in the past month. From May, the lower deeming rate will be 0.25 per cent for financial investments up to $51,800 for single pensioners and $86,200 for pensioner couples, and the upper deeming rate will be 2.25 per cent for balances over those amounts. Family situation Single Allowee couple - per person (1) Pensioner couple - combined (2)
Assets threshold $0 – $51,800 Above $51,800 $0 – $43,100 Above $43,100 $0 – $86,200 Above $86,200
Rate of deemed income 0.25% 2.25% 0.25% 2.25% 0.25% 2.25%
Centrelink changes In other news affecting Centrelink customers, income streams including Newstart, Sickness, Wife Pension and Bereavement Allowances have been axed, with the majority of those welfare recipients being transferred onto JobSeeker payments. The JobSeeker payment became the main income support from 20 March for eligible Australians who are at least 22 years of age but under Age Pension age. A spokesperson for Services Australia – formerly known as the Department of Human Services – said the changes were “part of the government’s commitment to making Australia’s welfare system simpler and fairer”. For more information, go to ServicesAustralia. For detailed information on the Age Pension, pension eligibility, income and assets test, Rent Assistance, the work bonus and much more, go to YourLifeChoices’ dedicated information site.
Retirement Income Review Treasury is reviewing all aspects of retirement income in Australia. A public consultation paper was released in November 2019, submissions from key bodies including YourLifeChoices were submitted in February and a final report is expected by June 2020.
YourLifeChoices Retirement Affordability Index™ March 2020
YourLifeChoices disclaimer
