1 Your retirement options Making the most of your retirement
2 Your retirement your choice Retirement it s an exciting time, but it s a challenging time. So many choices, so many possibilities so how do you make sure you can afford it? The fact is, there s no single financial solution that will suit everyone in retirement. For starters, we all have different needs and resources available to us. There are also different sources of retirement income be it the government Age Pension, your super savings, an inheritance, or maybe even continued income from paid employment. Then there s government legislation and taxation put it all together and there s a long list of possibilities. Not surprisingly, there s a whole range of retirement income products available to cater for various needs. So which one s best for you? Chances are, it s probably a combination of products arranged to maximise income to suit your needs. In this booklet we introduce some of the retirement income options available to you. VicSuper making sense of retirement A VicSuper financial planner can take you through these options in more detail. Your planner will help you make sense of the decisions that need to be made, and work with you to choose a retirement solution that makes the most of the resources you ve got which means you get to make the most of your retirement. We can help We know that retirement can be complicated, that s why with VicSuper, you re never alone. We provide a range of services to help you keep in touch with your accounts and with us: expert financial advice either face-to-face or over the phone, with our financial planners always ready to answer your questions and help you plan your future (and remember, in most cases there s no additional charge for members) phone support on for everything from quick questions about your account, or more detailed questions about your retirement planning educational seminars where you can come along and learn more about retirement planning and your options. 99.9% of members surveyed would recommend VicSuper*: The process was very thorough and everything was explained to me. I also felt that my best options were promoted which was very reassuring. ^ 2 * Results based on members who had Statements of Advice prepared and who completed an Interview Evaluation form between July 2014 to March ,221 of 1,222 of those surveyed would recommend VicSuper. ^ Member comment after meeting with a VicSuper financial planner - 12 January 2015.
3 At VicSuper, we ve been helping Victorians generate the retirement income they need for nearly 20 years. As a profit-to-member fund, we know how important it is to get the right advice, at great value for money. That s why in most cases there s no additional cost to our members (and it s only $200 for non-members). Plus, we don t pay commissions to our financial planners, which means they make suggestions in your best interests.
4 The right combination for you Income sources For most of us, the answer to our retirement income needs will actually be a combination of income sources, which takes into account: whether you qualify for the Age Pension (and if so, how much) any additional resources you have available (eg your super savings, and other assets) how long you ll need that money to last your needs versus your wants (eg the must haves versus the nice to haves ), and how they might vary throughout retirement. What exactly is retirement income? There are two main types of retirement income that can be provided using super money guaranteed income streams, such as annuities and flexible income streams, available through account-based pensions. A guaranteed income stream gives you a guaranteed amount of income for a set period of time (or for the rest of your life), providing security and peace of mind. A flexible income stream allows you to vary the amount of income you draw from the available pool as often as you like (although some limits may apply). It also allows you to choose (and change along the way) how your money is invested between a range of investment options. While flexible, it also requires a disciplined approach to ensure the money lasts. How will you spend your income? Generally, you ll spend your income in two ways on things you need in order to maintain a basic standard of living (food, clothing, utilities, and housing), and on things you want to help make retirement more enjoyable and fulfilling (holidays, entertainment, renovations, or extra for emergencies). 4
5 Putting it all together the retirement income solution The best retirement income solution will generally be one that uses both types of income and combines it with the Age Pension (if applicable) helping you to pace your income to suit the pace of your retirement. It makes a lot of sense to ensure you ll always have an income no matter what, to help fund those essential needs, and to have some additional flexibility to afford the things you want to have. Layering your income can help meet financial goals over time* Peak spending years Guaranteed Fixed Term Income Flexible Income Wants (what you'd like) Income Guaranteed Income for Life Needs (what you must have) Centrelink Age Pension 65 Age Match your income to your goals It s important to match your income to your goals, which can vary as retirement progresses. The need for additional guaranteed income, for example, may be higher in the earlier years of retirement, when we re living more active lives and enjoying a more diverse range of leisure pursuits. Typically (although not always!), those pursuits taper as we get older. * This diagram is illustrative only and not to scale. It is not a prediction or guarantee of any particular outcome. 5
6 The Age Pension is it enough? Perhaps the most well-known form of retirement income is the government s Age Pension. If eligible, it can generally provide you with some of your retirement income a maximum per fortnight of $ for a single person and $1, for a couple 1. But while it might be a great starting point, for most of us, it probably won t be enough to support the kind of retirement lifestyle we re hoping for. The graph below shows that there s a gap even between the maximum Age Pension allowance and the typical cost of a modest retirement lifestyle. A modest lifestyle would cover some of those basic needs only (food, shelter, utilities and nothing more). Instead, most of us hope for a little more from retirement at the very least a comfortable lifestyle that allows for the occasional holiday and meal out at a restaurant. To achieve that, we need to start looking beyond the Age Pension for sources of income. Historical gap between ASFA Retirement Standard and Age Pension 2 $65,000 $60,000 $55,000 $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 Mar 04 Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Age pension ASFA Comfortable standard ASFA Modest standard The Age Pension some pros and cons The Age Pension can provide a great base, but it may not be enough to provide the sort of retirement lifestyle that you desire. Your VicSuper financial planner can help you determine whether you can build on the Age Pension (if you qualify) with other tax-effective sources of retirement income As at 20 March These figures include the supplements that may be available. 2. As at March ASFA Retirement Standards and Age Pension rates shown here are for couples.
7 John tops up his Age Pension John is single, 67 and retired. He has $250,000 in super, owns his own home and has $20,000 in assets. If John leaves his super untouched, based on his current assets he is entitled to around $19,700 per annum in Age Pension payments. According to the ASFA Retirement Standard, he would need around $23,400 per annum to have a modest retirement lifestyle and cover his basic needs such as food and utilities. If John was to start a VicSuper Flexible Income with his super savings, this would pay him a yearly income of $15,000 (based on an initial payment rate of 6%)*. This, combined with the Age Pension, would bring his total income to $34,700 pa - enough to cover his basic needs and a few extras. *Based on projected investment earnings of 7.9% pa for the default Growth investment option, indexed at 3% pa and the VicSuper Flexible Income lasting a total of 30 years.
8 Guaranteed income streams security and certainty Guaranteed income streams provide a regular payment amount over a fixed period of time or lifetime. They may be an effective way to ensure you can cover your basic needs throughout retirement. If you re looking to supplement the Age Pension with a secure and regular income payment, a guaranteed income stream may be for you. Guaranteed Income accounts VicSuper offers two guaranteed income accounts* Guaranteed Income for Life, which pays an income for the rest of your life, and Guaranteed Fixed Term Income, which pays an income for your chosen term (from 1-40 years). One, or both, of these accounts may suit you, depending on your circumstances. How do they work? In return for your initial lump sum investment, you receive a series of payments for a period of time, as nominated by you (either as monthly, quarterly, half-yearly or yearly payments). They re generally best suited to those who have a minimum of $50,000 to invest. The income you receive is determined when you first invest, and is then paid over your nominated term regardless of market ups and downs. And, if you have a Guaranteed Fixed Term Income Account, you can elect to receive some or all of your initial investment amount in your regular payments, or as a lump sum payment at the end of the term. Our Guaranteed Income accounts also have the following features: ability to choose an option that protects you from increases in the cost of living option to nominate a partner to receive any remaining benefits in your account as an ongoing income if you die option to choose a withdrawal period, when some money will be paid to your beneficiaries or estate if you die during that period the cost of administering the account is included when the payment rate is first determined, so there are no ongoing direct fees or charges retirement income payments are tax-free favourable assessment for eligibility for the Centrelink age pension, particularly under the income test. Guaranteed income covering the essentials Guaranteed income accounts are typically best suited to covering your essential income needs (such as rates, rent, food, clothing). They can also be useful for providing a reliable income boost for those earlier years of retirement when your overall spending is more likely to be at its peak. 8 * The money you invest in a Guaranteed Income account is invested in a life policy (Policy) issued to VicSuper by Challenger Life Company Limited (ABN , AFSL ) (Challenger Life), a life insurance company within the Challenger group of companies. The benefits provided by the Guaranteed Income accounts are supported by the Policy, and not VicSuper Pty Ltd (VicSuper) as Trustee of the VicSuper Fund. VicSuper will only pay members their payments under the Guaranteed Income accounts to the extent that the Trustee receives payment from Challenger Life. Challenger Life s ultimate parent is Challenger Limited (ABN , AFSL ). Neither Challenger Limited nor any other company within the Challenger group of companies guarantees the performance of Challenger Life s obligations or assumes any liability in connection with the Policy. All references to guarantee refer to amounts payable under the Guaranteed Income accounts being guaranteed from the available assets of Challenger Life s Statutory Fund No.2. For more information about the guarantee, limitations and risks associated with the guarantee, please read the Guaranteed Income Product Disclosure Statement.
9 Joanne opts for certainty Joanne is 64 and retired. She wants part of her income to be more certain for the rest of her life, even if she lives much longer than expected. She also wants some inflation protection. Joanne has $350,000 in superannuation. She invests $100,000 into a Guaranteed Income for Life account and the remaining $250,000 in a VicSuper Flexible Income. The Guaranteed Income for Life, with the partial indexation option chosen, will pay her a $5,000 in the first year* and provide future payments which will provide some protection in periods of high inflation. Through her VicSuper Flexible Income she has chosen to receive $12,500 a year. By combining these income streams with the Age Pension, she s got enough to cover her basic needs and afford a comfortable life. Joanne s income and investment earnings are tax-free. * Based on a Guaranteed Income for Life quote as at 30 April The withdrawal period is 20 years, there is no reversionary nominated, income is paid annually and is partially indexed. 9
10 Flexible income streams the choice is yours Flexible income streams are about choice how you ll invest your income, and how you ll take that income, including how much and how often. It can be a great option for covering the things you want the little (or big) extras such as holidays, renovations, or even unexpected emergencies. It s up to you VicSuper Flexible Income VicSuper s Flexible Income allows you to: decide how you d like to invest your money by selecting from our menu of nine investment options (this product is market-linked, so your investment can rise or fall depending on the options you select) choose how much income you wish to receive each year (subject to meeting the Government s minimum) choose how often payments are made to your nominated bank account withdraw some or all of the balance if you need the cash, or if you just change your mind (minimum withdrawal of $1,000) arrange to have any money remaining in your account paid to beneficiaries or an estate if you die access your account 24/7 with VicSuper MembersOnline a secure online service that allows you to monitor and manage your account, anywhere, any time. Some limits apply The government sets an annual minimum withdrawal amount which increases with your age. If you re 64 or under, the minimum is normally 4% of your account balance at 1 July. If you re 65 74, you must withdraw at least 5% per year, and at least 6% if you re Minimum annual super payments Age at commencement or 1 July each year Minimum payment Under 65 4% % % % % % 95 and over 14% Plus, income payments (for those aged 60 and above) and investment earnings are tax-free. Keeping things flexible Flexible income is ideal for covering life s little extras especially if you ve already covered the essentials with a guaranteed income stream. Talk to your VicSuper financial planner to find out more about how flexible income could work with your overall retirement plan. 10
11 Bob and Jill keep their options open Bob is 65 and has $350,000 in super. He s just retired, and has decided to start a VicSuper Flexible Income account to meet his retirement income needs. He s chosen to receive $17,500 per year (the minimum 5% per annum), as his wife Jill plans to work part-time for the next three years. This strategy will suit their needs until Jill retires, at which point they ll review their situation. Bob s income and investment earnings from his VicSuper Flexible Income are tax-free. 11
12 Transition to retirement making a smooth change If you ve reached the preservation age (when you can legally access your super), but want to continue working, a transition to retirement (TTR) income could be for you. A VicSuper Flexible Income with TTR feature allows you to continue working and can help boost your super through salary sacrifice, all while taking some of your super as flexible income. Transition to Retirement feature flexibility and choice With the VicSuper TTR feature you can: continue working full time and benefit from the tax savings available, or reduce your work hours and maintain your take-home pay through the TTR strategy decide how your money is invested by selecting from our menu of nine investment options (this product is linked to market returns, so your investment can rise or fall depending on the options you select) choose how much income you wish to receive each year and change that amount at any time (within limits set by the government) choose how often payments are made to your nominated bank account (twice-monthly, monthly, quarterly, half-yearly or yearly) access your account 24/7 with VicSuper MembersOnline a secure online service that allows you to monitor and manage your account, anywhere, any time. Some limits apply As the TTR feature is part of the VicSuper Flexible Income account, the same minimum annual withdrawal amounts apply starting at 4% per year if you re aged Lump sum withdrawals are generally not allowed, and the maximum allowable income is 10% of the account balance each year. Refer to the table on page 10 for minimum withdrawals for your age. A word on tax* Investment earnings on your account are tax-free and the retirement income is tax-free if you re aged 60 or over. Tax may be payable on TTR income if you are aged 55-59, however you may be entitled to a tax-free amount and a 15% rebate on the taxable amount. This strategy is generally best suited to those with a taxable income greater than $19,400 and therefore have a marginal tax rate of 19% or more. Keeping your options open with TTR TTR incomes can be a great option if you want to build your super savings or ease into retirement by reducing your work hours and still maintain your income. They do come with a number of regulations and tax considerations though, so it s particularly important to get some good advice before embarking on this strategy. Your VicSuper financial planner can tell you more. 12 * Based on tax rates payable for 2015/16 as at 13 May 2015.
13 Geoff makes a gradual transition Geoff is 60 and has three grandchildren that he s helping his daughter look after while she returns to work, but he s not ready to retire fully. He s reduced his working days from five to three. Now he gets more time with the grandkids and can move more gradually towards full retirement. His salary has decreased by 40%, but his TTR income helps him to make up for it with payments from his super account. 13
14 Take charge of your retirement today Xx Here are six things you can be doing right now to get your retirement income needs on track: Think about the bigger picture for your retirement. Make a wish list. Think about what retirement means to you and what your expectations are. Look at your life expectancy to estimate how long your retirement income needs to last. Prepare a retirement spending plan that clearly separates your needs and wants. Get to know your options for retirement income, and think about how secure or flexible you d like your income to be. Decide whether you would like to leave any of your savings to your family or friends. Make an appointment to see a VicSuper financial planner to help plan your retirement. We can help A VicSuper financial planner can take you through your options in more detail, working with you to understand your current situation and your needs so that together you can create a plan that makes the most of what you ve got, and gives you the best chance of achieving your retirement dreams. Make the most of your retirement call VicSuper on , or visit vicsuper.com.au/advice 14
15 The information contained in this brochure is given in good faith and has been derived from sources believed to be reliable and accurate, based on laws current at 12 May No warranty as to the accuracy or completeness of this information is given and no responsibility is accepted by VicSuper Pty Ltd or its employees for any loss or damage arising from reliance on the information provided. This publication does not take into account your financial situation, objectives or needs. VicSuper recommends you seek professional advice for your own circumstances. Visit vicsuper.com.au and obtain a copy of the relevant Product Disclosure Statements. You should consider this document in deciding whether VicSuper is right for you. You can contact VicSuper to make an appointment to see one of our VicSuper representatives. VicSuper Pty Ltd ABN ( VicSuper ) is the Trustee of VicSuper Fund ABN The Trustee holds an Australian Financial Services Licence (AFSL ) under the Corporations Act 2001 (Cwlth) and a RSE Licence under the Superannuation Industry (Supervision) Act 1993 (Cwlth). Under its AFSL, VicSuper is licensed to deal in, and provide financial product advice on superannuation products. At present, VicSuper representatives are limited to providing financial product advice on VicSuper products; ESSSuper - Revised, New, SERB and Transport Schemes; providing advice on whether a member should consolidate or roll over their superannuation holdings into VicSuper (excluding personal advice on selfmanaged superannuation funds); and general superannuation matters VicSuper Pty Ltd. All rights reserved. No part of this communication, covered by copyright, may be reproduced or copied in any form or by any means without the written permission of VicSuper Pty Ltd.
16 Xx Get in touch we re here to help Call our Member Centre and speak to a VicSuper superannuation consultant Advice centres Bendigo Blackburn Geelong Melbourne CBD Traralgon Monday to Friday 8.30am to 5pm To make an appointment to see a VicSuper financial planner call Or book online at Send us a fax Write to us VicSuper GPO Box 89, Melbourne VIC 3001 Browse our website vicsuper.com.au Manage your account online Simply visit our website to login Printed on an environmentally responsible and carbon neutral paper. 16 V733 05/15