The million-dollar retirement myth continues to be pushed by those in the finance sector, keen to see you invest more money so that investment fee revenue can continue to increase.<\/p>\n
The good news is that the July 1 change in Centrelink means-test thresholds means a home-owning couple with combined savings of $400,000 can look forward to a tax-free income of $65,000 a year, indexed for life and using relatively low-risk investment strategies.<\/p>\n
For singles with similar savings, the base income is more than $41,000 with an incentive to spend some of your savings in the early years.<\/p>\n
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By continuing you agree to our Terms<\/a> and Privacy Policy<\/a>.<\/p>\n Importantly, you won\u2019t need to access the equity in your home.<\/p>\n The reality is that many superannuation fund websites and some financial planners conveniently omit that the bed-rock of Australia\u2019s retirement income system is the interaction between accumulated savings and Centrelink\u2019s age pension.<\/p>\n Under the system, means tests limit the level of government support provided through the application of an income test and an asset test. The test that produces the lowest pension payable is the one latched onto by Centrelink\u2019s systems.<\/p>\n With the primary dwelling specifically exempt from means-testing, a couple can have assets of up to $1,059,000 and still qualify for a part-pension. Under the income test, combined annual income for a couple can be up to $99,954 before losing eligibility for a part-pension.<\/p>\n For home-owning singles, the upper asset cut-off is $704,500, with an income limit of $65,416 a year.<\/p>\n Non-homeowners are allowed an additional $252,000 in assets before reaching the upper cut-off limit.<\/p>\n Critically, Centrelink\u2019s calculation of income is not the same as the one used by the Australia Taxation Office. Withdrawals and payments from superannuation or account-based pension funds are ignored, as is bank interest and dividends from shares. Instead, Centrelink applies a deemed rate of income based on the balance of these and other \u201cfinancial assets\u201d.<\/p>\n While the upper means-test limits are important to those with money behind them, those with more modest savings are where the system comes into its own.<\/p>\n Let\u2019s take a same-age couple with $400,000 in savings and, for simplicity, we\u2019ll assume that\u2019s made up of $10,000 in the bank and $390,000 in super.<\/p>\n At the age pension eligibility age of 67, our couple transfers the super into an ABP, which by law must pay them 5 per cent a year. That works out to be $19,500.<\/p>\n The money\u2019s invested in a capital stable or conservative option which should easily match the drawdown rate and, indeed, provide some growth for the future. The remaining $10,000 is invested in an online bank account paying 4.5 per cent a year, which is also where they pay their bills from. For their investments, that\u2019s an income of $19,950 a year.<\/p>\n We\u2019ll also assume that the second-hand or scrap value of their fixed assets \u2014 like personal effects, contents and cars \u2014 is $30,000.<\/p>\n Our couple is well under the couple\u2019s asset test lower limit of $481,500, meaning they\u2019ll qualify for the full age pension of $866.10 each, or a combined $1723.20 a fortnight. That\u2019s indexed twice a year in March and September, but for now that works out to be $45,037.20 a year.<\/p>\n Add the two incomes together and we end up with a combined annual income of $64,987.20 a year.<\/p>\n That figure is higher than the average required for a better-than-modest lifestyle according to the Australian Superannuation Funds Association\u2019s current retirement income standard. ASFA says that a \u201cmodest\u201d lifestyle requires an income of at least $48,184 and for a \u201ccomfortable\u201d lifestyle it\u2019s $73,875 a year.<\/p>\n It assumes our seniors are completely debt-free in retirement.<\/p>\n The numbers are not quite as attractive for singles because of the lower Centrelink means-test thresholds.<\/p>\n A single with identical assets can generate a base income of $41,361, with the age pension contributing $21,411 of that total. The full age pension of $29,874 is not payable because the asset means-test threshold of $321,500 is under their assessable asset total of $430,000.<\/p>\n That figure is well above the ASFA \u201cmodest\u201d income requirement for a single of $33,386 but under the $52,383 figure required for a \u201ccomfortable\u201d lifestyle.<\/p>\n Incredibly, each $1000 spent by our single will see their age pension increase by $3 a fortnight until they hit the maximum. That works out to be an effective 7.8 per cent return on their money, courtesy of Centrelink.<\/p>\n The numbers are clearly different for renters and the rental assistance payment of about $200 a fortnight doesn\u2019t go far in the current rental market.<\/p>\n","protected":false},"excerpt":{"rendered":"The million-dollar retirement myth continues to be pushed by those in the finance sector, keen to see you…\n","protected":false},"author":2,"featured_media":44384,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[64,63,99,186,184,185,193],"class_list":{"0":"post-44383","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-au","9":"tag-australia","10":"tag-business","11":"tag-finance","12":"tag-personal-finance","13":"tag-personalfinance","14":"tag-wealth"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/44383","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=44383"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/44383\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/44384"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=44383"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=44383"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=44383"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}