Living the retirement you deserve

Transcription

1 LifeGuides Are you about to retire? Have you just retired? Your lump sum The Age Pension Enjoying your retirement Evaluating retirement villages Estate planning Getting help Living the retirement you deserve A service brought to you by ANZ

2 LifeGuides Living the retirement you deserve Retirement could be the best period of your life. It s also a time of great change. You may often have more time on your hands and in most cases, you ve received that last pay cheque and have some major decisions to make. The size of your retirement nest egg is often a major factor in determining your lifestyle but, regardless of your financial situation, you have choices. This LifeGuide is designed to provide a framework to help you consider your options. Are you about to retire? If you are about to retire or are considering retirement, it may be wise to establish your current financial position. To do this, list your assets and your debts and establish what you may have left over to invest for retirement once you have made any one-off purchases and are debt free. Understanding exactly where you are financially may give you a better chance to make the right decisions for your future. There are steps you can take to maximise your retirement nest egg. Some things to consider: if you are over 50 and eligible to make tax deductible contributions to your superannuation fund, then you will be able to contribute up to $50,000 per year until 1 July 2012 to which the concessional tax rate of 15% applies. After this date the most of this type of contribution you can make is $25,000 per year (indexed) There is also a limit on the after-tax superannuation contributions, from which no tax will be deducted in the fund. The limit is six times the annual concessional contributions cap, which means for the 2009/2010 financial year the limit on after-tax contributions will be equal to $150,000. if you are over 55 you may have the option of easing your way into retirement. You can cut back your working hours but maintain your income level by taking a regular income from your superannuation in the form of a non-commutable pension if you are under 65 you can bring forward two years super contributions. This means you can currently contribute $450,000 in one year but then you will be unable to make further after-tax contributions for the next two years. This may be appropriate if you have received a lump sum if you are still working after age 65 you may be eligible to continue making tax deductible superannuation contributions until age 75 if you are over Age Pension age and still working you may qualify for a work bonus. Under the work bonus up to 50% of the first $500 earned in employment income is excluded from the income test for pensioners over the Age Pension age. You should contact Centrelink for more information. Have you just retired? If you have just retired then there is no need to rush. The decisions you make now may impact the rest of your life. Upon retirement, your accumulated super savings can be maintained in the superannuation environment while you consider your options (previously it was generally compulsory to withdraw funds at age 65 or over if you were not working). Before we go any further, some things to understand about superannuation upon retirement include the following: if you are over 60 and you receive either a lump sum or a regular income (such as annuity or pension) from a taxed source (e.g. a complying superannuation fund) then it is tax free you are not required to include in your tax return any lump sum superannuation benefits and pensions paid from a taxed source after you reach age 60 For every $1,000 in assets over the assets test threshold you will lose $1.50 a fortnight in Age pension If you haven t already done so, now is the time to develop your post retirement strategy. You may want to think about the following Your ability to go it alone With time on your hands, and the right skills, you may decide to manage your own financial affairs. Alternatively, this may be the last thing that suits or interests you. Either way, you should consider talking to a qualified financial planner. Our LifeGuide to Investing for your future can help you establish what s right for you and it also provides handy hints to help you find the right professional.

3 Your true financial position How much disposable income will you have during your retirement? Some retirees are well off on paper, but don t have a lot of money. In other words, they are asset rich, cash poor. They own their home and other non-liquid assets, yet may have to scrape together enough money to pay the bills and buy the weekly groceries. You do have options and we will examine some of them in a moment. Your budget You should think long and hard about your budget and exactly what sort of income you may need now and in the future. Given your change in lifestyle, your budget will often change as well and may need to be adjusted over time. Again the right financial adviser may be able to help. Your lump sum This LifeGuide is meant to provide a general overview of some key areas. Space does not allow us to cover all of the options for increasing and investing your lump sum. However, we will briefly examine a few common considerations. Selling the family home You may top up your retirement nest egg by selling the family home and buying something less expensive. If the home has been your principal place of residence (as defined by the Australian Taxation Office (ATO)), then it s likely any capital gain you make will be tax free. However, think carefully before taking this step and work through all the pros and cons Your bad debt We mean debt that is not secured against investments that are producing income or growth. Generally it is advisable to clear your credit cards, personal loans and home loan as soon as you can. Your time frame Many retirees have a longer time frame than they recognise. Ideally, you ll have a long and healthy retirement, so take steps to ensure your money lasts. Your need for growth Don t overlook the need for capital growth. Putting all of your money in secure but low growth investments may not provide the lifestyle you desire. Some exposure to growth investments over the long term may improve the longevity of your retirement nest egg. So consider looking for investments that provide regular income, as well as growth. Your risk profile Generally, the higher the potential returns, the greater the risk, and you don t want to spend your retirement worried about money. Some people wouldn t worry if part of their investment suffered short term fluctuations. However, they may be a lot less comfortable if they invested in a highly speculative area and lost their entire nest egg. The key is to spread your investments, giving you a balance that allows you to reduce your exposure to short term fluctuations. The first thing you may decide to do is delay your retirement. There are government incentives to encourage you to stay in the workforce and top up your superannuation. Make sure you examine the costs of buying and selling property. Once you have paid agents commissions, taxes, spent money renovating or altering the new home, purchased new furniture and so on, the final changeover may not leave you with as much extra cash as you had hoped. For more information you may like to read our LifeGuides to Selling your home and Buying your new home. You should also look at the lifestyle issues concerned. Many people may dream of making a sea or tree change. And for some, it s the ultimate retirement lifestyle escape. For others, moving away from family and friends proves difficult. If you have sold your home in the city and purchased something cheaper in the country, you may find you are unable to afford to move back. Reverse mortgages One option to allow you to stay put and still increase your retirement income is a reverse mortgage, where you can borrow money against the value of your home. In most cases, you don t have to make loan repayments until you move, sell or die. You don t need a regular income to access this type of loan and, depending on the loan, you can take money as a lump sum, a regular income, or a combination of both. However, you should understand that you will be eating into the value of your home. If you plan to use the proceeds from the eventual sale to buy into aged care or to leave an inheritance, this may be compromised. Each year, any fees and interest you are charged may be added to the balance of the loan. In most cases, you are charged compound interest (interest on the interest) and in time you could owe a much larger amount than you originally borrowed. Making the most of your retirement includes not losing sleep over your finances.

4 LifeGuides Living the retirement you deserve Given the nature of compound interest and fluctuating house prices, there may be a risk of negative equity. This means you could owe more than your home is worth. Most reverse mortgages come with a guarantee that you will not be forced to sell your home or repay more than the home is worth (this is known as a no negative equity guarantee) but this is not always the case. You should read the fine print carefully. Some things to consider include: the interest rate is often likely to be higher than normal home loan rates if you are the sole owner, your partner may not be able to stay in the house after you move into care or after you die generally, regular repayments are not required over the loan term, so there is no way of knowing exactly how much you will owe at the end of the loan the equity in your home is likely to reduce at a slower rate if the funds are drawn down as a regular income stream rather than a lump sum some reverse mortgages allow you to effectively protect a fixed percentage of the property value to ensure that some money will be left over in the end pension entitlements may be affected depending on how and when the funds are used Investing your lump sum As mentioned, you can use your nest egg to provide a regular income stream through a pension or annuity. The main difference between the two is: Pensions are only available from superannuation funds and can only be purchased with superannuation benefits Annuities can be purchased from life insurance companies using superannuation benefits or, in some cases, other savings Understanding how long you may need your income to last will play a role in deciding where to invest. And remember to factor in the impact of inflation. If your after-tax income doesn t keep pace with inflation, your buying power and lifestyle may be compromised. You should also plan to set aside funds for one-off purchases such as a new car, holidays or eventually buying into an aged care facility. income, there are any number of products to consider. You should do your research and get expert advice. As for the basics, your choices broadly include: an income to last for a specified term, which may leave you reliant on the age pension after the term ends an income that depends on the investments you select rather than a set term, which may leave you reliant on the age pension when your account is exhausted an income that is guaranteed for your life and/ or your partner s life In determining their ongoing income, some people prefer to receive more money in their early retirement years when they are active and travelling. Others may enjoy the security of knowing that their income will last as long as they do and that they will not have to rely solely on the age pension. Make sure you understand the costs and the different returns you may receive from the various options. For a detailed description of how reverse mortgages work, you should visit the Australian Securities and Investment Commission consumer website (see Getting help). The Age Pension Depending on your circumstances, you may also be eligible to receive the Pension Supplement, which provides assistance with things such as prescription drugs, utility payments, your phone bill, travel and so on. You can obtain more information through Centrelink. These benefits are one reason why many people organise their finances to allow them to receive at least some pension. How much (if any) pension you are entitled to depends on two things: your assets your income Each person s situation is different, but to illustrate the point, our examples below are based on a couple living together and owning their own home. Your home is not included in the assets test. In terms of a pension or annuity that delivers an ongoing

5 If you are travelling within Australia, the best place to start is often the relevant state or territory tourist bureau. The assets test Assets can include cars, boats, home contents, savings and investments. Any money owed on these assets is taken into account. The age pension is scaled back until the asset level reaches $928,000, after which there is no entitlement to any age pension. The income test Income can include any income generated by working or from investments we will discuss this further when looking at deeming. Income above this amount will gradually reduce their pension until it cuts out at an income of $2, per fortnight. The test that gives the lowest pension rate is the one that applies. For example, they re entitled to a full age pension of $1, per fortnight (combined). But if they earn $ per fortnight, they re entitled to a slightly reduced pension. The income level triggers the lower pension rate under the income test. Deeming Pensioners income from assets is assessed under a set of rules called deeming. This is a system where the government deems you to be earning a certain rate of return on your investments. for a couple, the rate is 2% for the first $70,000 invested and 3% for anything above. for a single person, the rate is 2% for the first $42,000 invested and 3% for anything above. Deeming can work to your advantage. Consider the example of a single person with $50,000 invested and earning 6.00% per annum. Under deeming, the income would be assessed as follows: the first $42,000 is deemed to be earning 2%, or $ per year the remaining $8,000 is deemed to be earning 3%, or $ per year the total income deemed to be generated equals $1, the actual amount earned is 6.00%, or $3, per year the advantage to this person is $1, Note: The figures regarding pensions and deeming quoted are current as at 1 July Enjoying your retirement We are now living longer than we ve ever done, so why not make sure you enjoy it? There are many options for retirees. Take advantage of all benefits As we have already mentioned, there are a number of benefits available to pensioners. However, even if you don t receive a pension, there is other assistance available. The Commonwealth Seniors Health Card is provided by the Federal Government and gives older Australians (who pass an income test) concessions on prescription medicines through the Pharmaceutical Benefits Scheme. The Seniors Card isn t means tested and is available to any Australian resident who is over 60 and not working full-time. This card can give you access to discounted travel on public transport, concessions at major sporting and cultural events, free access to selected museums and a variety of other discounts from the private sector. Different discounts apply in each state and territory. Travelling If it s time to see the world, then your first destination may be the Federal Government website which is packed with helpful information for Australians travelling overseas. You can also download a booklet called HINTS for Australian Travellers or obtain a copy by calling You may also like to read our LifeGuide to Travelling, which is packed with information to help you plan a safe and happy trip. Along with all of the popular travel magazines and websites, other destinations of interest may include: Learning Many people use their time to learn something new. There are all sorts of opportunities, and you may find some inspiration from the following: Adult Learning Australia (02) is the peak body representing organisations and adults in learning Adult Learners Week is held in the first week of September each year. The website provides contact details for adult and community education organisations across the country is a directory providing information on a wide range of short courses available within Australia

6 LifeGuides Living the retirement you deserve Working If you do want to continue working in retirement but are looking for a new challenge, the Federal Government employment website has a host of information designed specifically for the mature worker. Working Connections offers a job matching service for older Australians along with a number of other services, such as assistance in developing your resume. For more information go to Volunteering Australians love being involved in the community and there are plenty of chances for you to put your free time to good use and enjoy the rewards that volunteering has to offer. The following contacts may help: Volunteering AUSTRALIA (03) is the national peak body for volunteering in Australia GoVolunteer is an initiative of Volunteering Australia and is Australia s first national volunteer recruitment website. It is a not-for-profit site that provides FREE Internet advertising for not-for-profit community organisations looking for volunteers Australian Business Volunteers (02) provides Australian expert volunteers who share skills and experience to assist businesses and organisations in developing countries Australian Volunteers International www australianvolunteers.com is an Australian non-government organisation that provides opportunities for Australians to live alongside, learn from and share skills with people in developing communities is a database of thousands of volunteering opportunities across the country is a database of volunteering opportunities run by job search company SEEK Charities Along with donating their time and energy to a worthy cause, many people decide to make donations or perhaps a bequest though their Will. Another alternative, could be establishing a charitable trust. Money is invested by the trust (in most cases donations are tax deductible) and the investment earnings are distributed to the charitable organisations the trust supports. This step is not difficult and an advisor or financial institution can help. If you would like more information about various charities, you may like to access Australian Charities which is a gateway to the major charitable organisations in Australia. Evaluating retirement villages Moving to a retirement village is like no other move you ve ever made. Buying a retirement apartment or villa is not so much buying real estate as buying a new lifestyle. Choosing a village Think about your needs, especially your health and other special needs, and consider the following: is the village registered with the Retirement Village Association? is there care available if needed? what facilities are available? If you re going to pay for them, will you use them? if you don t drive, is there a bus service? Plan ahead, because you won t always have your licence You ll be paying for the replacement of facilities, so make a note of what looks tattered or worn are the doorways and entrances wide enough for wheelchairs? are there stairs? Will they be a problem? are there 24-hour call buttons with access to emergency staff? Is there a charge when you use them? are the footpaths even? Small obstacles can become big if you find walking a problem. Can they fit two people side-by-side? if the village is not completed, check that there s a promised finish date. Ask what recourse you have if this timeframe is not met find out if the village has a disputes committee for arbitrating between residents and the management and between individual residents check the quality of the food will you still require insurance for any personal contents you may take with you, or does the retirement village cover this? Ask some of the established residents about the background of the manager. If members of the management committee are also the trustees, be aware that the people spending the money may be only answering to themselves. There are many misconceptions about retirement villages. Even though there may be two tiers of care, it s not necessarily easy to move from one to another. It may require terminating the original agreement and buying in again. Given it is such a major decision, you should also seek proper advice. If you are considering a village, make sure the contract is checked by a solicitor with suitable experience examining this type of contract. For more information on retirement villages the Federal Government produces a helpful booklet called Accommodation choices for older Australians and their families. You can obtain a copy from Centrelink or by calling is an independent website offering information about retirement villages to prospective residents and their families.

7 06 07 Estate planning Wills Making a Will is the best way to ensure your assets will be distributed after your death according to your wishes. If you die without a Will, you are said to have died intestate, and your estate will be distributed according to the laws, that vary from State to State. So if you don t have a Will you should consider seeking professional advice to prepare one. If you do have a Will, ask yourself whether it needs to be updated. The LifeGuide to Protecting your family s future has a checklist that can help. Estate planning is much more than just making a Will. The development of an estate plan involves a review of your financial affairs and your personal circumstances, combined with your objectives, to ensure that when you die, your wealth is passed on to the right people at the right time. Powers of Attorney A Power of Attorney can be a very useful tool to help you organise your affairs. Put simply, a Power of Attorney is a legal document by which you appoint another person to make decisions on your behalf. There are various types of Powers of Attorney and you should seek advice from a qualified professional to establish what s right for you. Getting help You are sure to find some of the following contacts useful. General: is the Federal Government s premier source of information for Australians over 50. It acts as a portal providing access to relevant government and nongovernment organisations. For more information, you can call The Aged and Community Care InfoLine Centrelink provides a free financial information service, including one-on-one consultations State and territory government portals Victoria NSW ACT Northern Territory Queensland South Australia Tasmania Western Australia Australian Retired Persons Association (ARPA) is an independent, national, non-profit organisation for seniors The Association of Independent Retirees is a non-political advocacy group representing self-funded and partially self-funded retirees throughout Australia The Council on the Ageing (COTA) is one of Australia s leading seniors organisations and is open to people over 50 National Seniors is a membership based not-for-profit community organisation that aims to provide economic and social benefits for people 50 years and over is a Federal Government initiative providing easy access to quality information about your health and the assistance available Help for your finances: The Australian Taxation Office provides a host of helpful information and free booklets concerning tax issues at For superannuation go to or call the Super Infoline The Australian Securities and Investments Commission (ASIC) consumer website is or you can call The Treasury website has a detailed explanation of the recent changes to superannuation The Financial Planning Association of Australia can provide advice on choosing a financial planner and has an online tool to help you find a planner in your area The National Information Centre on Retirement Investments (NICRI) is a not-for-profit organisation providing free information over the phone and fact sheets The Financial Ombudsman Service Limited (FOS) can assist if you have a dispute with a planner or financial institution. CANNEX is an independent organisation providing both information and comparisons of various financial products InfoChoice can provide unbiased information on various financial products If you need a solicitor and don t have one the Law Society can help you find a specialist in your area.

8 LifeGuides Living the retirement you deserve You may also like to read our LifeGuide to Maximising your family s budget. For more assistance Contact your local branch Phone or visit anz.com General Enquiries P INTL hrs / 7 days ANZ Trustees P am 5:30pm (AEST) Weekdays ANZ Financial Planning P am - 8pm (AEST) Weekdays Australia and New Zealand Banking Group Limited (ANZ) ABN ANZ s colour blue is a trade mark of ANZ. Item No W Copyright Australia and New Zealand Banking Group Limited (ANZ) Level 14,100 Queen Street, Melbourne 3000, ABN The information in this Guide is current as at October The information is in summary form and does not purport to be complete. It is intended as a general guide only and is not a substitute for professional advice. The information does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you. When considering financial products, you should read the Product Disclosure Statement and Financial Services Guide before deciding to acquire or hold the product. anz.com