Retirement Affordability Index - September 2018

ISSUE 7 SEPTEMBER 2018

Retirement Affordability Index

™

THE SUPER CHALLENGE All retirement nest eggs need to work hard because we‘re living longer.

Here are the strategies that can make your superannuation go further. www.yourlifechoices.com.au

Will share market falls put a dent in your lifestyle?

Share market ups and downs can mean a bumpy ride for your retirement savings. Fortunately, a Challenger annuity can help protect you from market crashes by paying you a guaranteed monthly income just like a regular paycheque.

Talk to your financial adviser or call us on 13 35 66 Discover your lifestyle expectancy at challenger.com.au/LE

Talk to your financial adviser or call 13 35 66 Challenger Life Company Limited ABN 44 072 468 938, AFSL 234670 (Challenger Life) issues Challenger annuities, which offer a range of terms, payment frequencies, return of capital and inflation options. Before making an investment decision, consider the current product disclosure statement (available from a financial adviser or www.challenger.com.au) and the appropriateness of the annuity to your circumstances (including the risks). The word ‘guarantee’ refers to payments Challenger Life promises to pay under the relevant policy document.

31372/0418

Contents

Published by: Indigo Arch Pty Ltd Publisher: Kaye Fallick Editor: Janelle Ward Copy Editors: Haya Husseini, Olga Galacho Writers: Matt Grudnoff, Emmett Wilkinson, Michael Horan, Duncan Collie, Olga Galacho, Janelle Ward Designer: Word-of-Mouth Creative Email: admin@yourlifechoices.com.au Web: www.yourlifechoices.com.au Phone: 61 3 9885 4935 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 Indigo Arch Pty Ltd 2018

Super – a work in progress Why it’s vital that you make the most of what you have

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The tribes explained How YourLifeChoices’ six retirement tribes were born

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Cost-of-living increases Transport and healthcare costs put pressure on household budgets

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Track your household spending Use our budget planner to calculate where your money is going

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Living longer, living smarter Making your retirement income go further is the challenge that goes hand in hand with increased longevity

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What’s causing Age Pension pain?

Are cost-of-living pressures out of control or is it all just talk? Senior economist Matt Grudnoff explains the forces at work

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Superannuation explained 12 We all need it and most of us have it.

Olga Galacho explains the finer detail about super

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Making your super go further • Case study 1: Affluent Couple Jeff and Marion have $420,000 in super.

Financial consultant Emmett Wilkinson tells how they can make the most of their savings

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• Case study 2: Constrained Couple Retirees Jenny and Peter have $200,000 in super. Financial adviser Michael Horan gives their finances a makeover

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• Case study 3: Cash-Strapped Single Paula is struggling on a full Age Pension.

Financial adviser Duncan Collie delivers a strategy that offers relief

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Government update What has changed and what is about to change?

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YourLifeChoices Retirement Affordability Index™ September 2018

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Super system in the spotlight but still a work in progress While much of the focus in superannuation is on underperforming funds and inadequate balances, older Australians must make the most of what they have.

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ourLifeChoices asked members in its 2018 Retirement Matters Survey how much in savings they believed was required for a comfortable retirement. The respondents are people who are in, or close to, retirement and therefore the most qualified to comment.

Fifty-seven per cent of the 5932 respondents said a couple needed $600,000-plus and 22 per cent said at least $500,000; while 69 per cent said a single person needed a minimum of $300,000.

small balances of super can still make a big difference to the quality of life in retirement.”

The reality is that most people who retire in the next few years will rely partially or substantially on the Age Pension, and while the gender gap is closing, women still lag substantially behind when it comes to average super balances.

In YourLifeChoices’ 2018 Retirement Matters Survey, 47.55 per cent of respondents said they were on a full or part Age Pension, while 52.45 per So how much do Australians actually have? cent said they were self-funded. Almost half – 44.6 per cent – said they did not According to the Australian believe their savings would Bureau of Statistics (ABS), ‘Most funds have answered provide an income for life and during the years 2015 and another 31.8 per cent were the questions of the 2016, the mean superannuation balance at, or approaching accumulation phase in similar unsure. Only 23.6 per cent were confident their nest egg would preservation age (55–64 years) ways, but there is likely to last the journey. was $310,145 for men and $196,409 for women.

be a significant divergence in how funds respond to decumulation.’

However, the Australian Institute of Superannuation Trustees (AIST) estimates that most people approaching retirement have about $100,000 in super. Less than five in 1000 fund members have the coveted $1 million or more that bump up averages, it says.

The compulsory Super Guarantee (SG) was introduced in 1992 as a means of creating retirement income for older Australians and reduce reliance on the Age Pension.

But even with the adjustment of the SG from nine per cent to the current 9.5 per cent – with 12 per cent the target from 2021 – the balances achieved do not fund the lifestyles many retirees want.

AIST CEO Tom Garcia says: “The reality is that most Australians – including most of those starting out in the workforce today – will not retire with the equivalent of $1 million in super.

“We need to stop focusing on the needs of a privileged few and start talking about how relatively 4

Super savings have a way to go.

The 2018 Federal Budget sought to address some glaring super issues, including banning exit fees, protections for low balances, more power for the Australian Tax Office to merge multiple accounts, and changes in relation to default life insurance.

In September, 19 industry funds agreed to automatically consolidate multiple accounts that were inactive and contained less than $6000. These are steps in the right direction, but the journey is far from complete.

The Federal Government’s Productivity Commission report, Superannuation: Assessing Efficiency and Competitiveness, found that: • by eliminating multiple accounts and switching to a better-performing fund, a 55-year-old could gain an extra $61,000 by retirement age • over the past 10 years, one in four funds have ‘persistently’ fallen short of the mark, potentially costing a new member $375,000 by retirement age.

YourLifeChoices Retirement Affordability Index™ September 2018

Explaining the retirement tribes For too long, retirees have been viewed as one big homogenous group. Of course, they’re not.

YourLifeChoices and The Australia Institute have created six retirement tribes on the basis of the following criteria: • main source of income • home-owner or renter • couple or single household.

The result was the following six tribes …

Affluent Couples and Singles – home-owners with private income Estimated annual expenditure $74,813 and $42,767 This is the good life. To achieve this level of income, on current cash rates of 2.5% (i.e. not from investment in the sharemarket or property), a couple would need almost $3 million in savings and a single $1.7 million.

• Retirees in these tribes tend to spend more on energy than their counterparts, although a much lower proportion of income.

• Weekly expenditure on food, which includes dining out, is high ($231 and $116), significantly more than couples on an Age Pension who rent.

Similarly, $31 and $21 spent per week on clothing and footwear is almost three times the budget for the Cash-Strapped tribes.

The super industry is in the spotlight, but for all those either in or nearing retirement, particularly females, the challenge is to make the most of what you have, which for many will mean seeking professional advice.

And the added difficulty there is the sometimes illegal and often immoral activity unearthed by the financial services royal commission. Trust in the sector is at an all-time low.

While there is a clear focus on amendments to the accumulation phase of super, what about the decumulation process? How much should you be drawing from a pension account? Should you buy an annuity? Can you structure your super in order to be eligible for at least a part Age Pension?

Financial giant KPMG says meeting the needs of retirees in retirement is both complex and evolving.

YourLifeChoices disclaimer

Constrained Couples and Singles – home-owners on the Age Pension Estimated annual expenditure $42,995 and $23,794 The maximum base Age Pension for couples is $16,354 each per annum and for singles $21,684.

Many in this category may also be on part pensions so private income must make up the shortfall.

• Housing expenditure was relatively low for couples (13 per cent), but high for singles (20 per cent).

• The percentage spent on food was the highest outlay for couples (20 per cent) and the secondhighest (18 per cent) for singles.

• The percentage spent on transport was high (15 per cent and 11 per cent) compared with other categories.

Cash-Strapped Couples and Singles – renters on the Age Pension Estimated annual expenditure $36,177 and $22,743 • The highest percentage of income, as expected, was in housing – 29 per cent and 36 per cent.

•T he lowest spend was on health – a mere five per cent each – which raises the question whether they are missing out on important preventative measures.

• Alcohol and tobacco was a high spend category (six per cent and five per cent) compared with all other groups.

“Most funds have answered the questions of the accumulation phase in similar ways, but there is likely to be a significant divergence in how funds respond to decumulation,” the company says in its Super Insights 2018 report. “Succeeding in the decumulation space is the next big challenge, and a powerful opportunity for the super funds bold enough to lead the way.

It is imperative that Australians maximise the value of the super they have, which is why the September edition of the Retirement Affordability Index™ answers ‘The Super Challenge’. This issue explains the nuts and bolts of super and present three case studies – one for each of our tribes, Affluents, Constrained and Cash-Strapped – created by three financial advisers.

Their task was to make super balances of $70,000, $200,000 and $420,000, go further. We hope their strategies can inform and help you.

YourLifeChoices Retirement Affordability Index™ September 2018

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Health and transport drive up costs

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he price increases that had the biggest effect in the quarter were transport, driven by a 6.9 per cent increase in fuel; and health, where medical and hospital costs were 3.1 per cent higher.

Transport has been a significant driver of price increases in the past year, mainly due to higher petrol prices, but this has flown under the radar because of electricity and house price rises.

Transport costs had the biggest effect on the Constrained and Affluent tribes, with the CashStrapped tribes spending a smaller proportion of their income in this area.

Health costs significantly influenced retirement affordability with private health insurance increases

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

the main culprit. Constrained Couples were most affected because they spend the largest proportion of their income on health.

Surprisingly, clothing and footwear also pushed up the cost of living. While the impact was only small, it was unusual because clothing and footwear have been going down in price. In fact, prices are almost identical to what they were in 1990.

Three categories pushed the cost of living down for retirees: recreation, communications and food and non-alcoholic beverages.

The quarter also saw a small drop in the price of utilities, driven by discounting in electricity and gas, but the decreases were minor when compared with recent increases.

Constrained Couples

Couple Couple homeowners homeowners with private on Age income Pension $180.96 $106.96 13% 13% $43.58 $32.73 3% 4% $231.68 $163.18 16% 20% $52.59 $26.11 4% 3% $31.65 $17.96 2% 2% $74.60 $32.37 5% 4% $41.81 $29.58 3% 4% $143.01 $101.93 10% 12% $193.95 $125.91 13% 15% $37.15 $26.33 3% 3% $290.09 $98.51 20% 12% $0.57 $0.21 0% 0% $28.69 $17.41 2% 2% $88.37 $47.66 6% 6% $1,438.71 $826.83 +$6.18* +$3.17* $3,582.93 $6,234.43 +$13.73* +$26.79* $74,813.10 $42,995.19 +$321.37* +$164.75*

CashStrapped Couples Couple who rent on Age Pension $202.56 29% $34.55 5% $147.55 21% $42.25 6% $9.50 1% $19.69 3% $15.98 2% $35.29 5% $59.86 9% +1%* $28.49 4% $64.05 9% $0.00 0% $12.10 2% $23.83 3% $695.72 +$0.75* $3,014.77 +$3.24* $36,177.20 +$38.82*

YourLifeChoices Retirement Affordability Index™ September 2018

Affluent Singles

Constrained Singles

CashStrapped Singles

Single Single Single who homeowner homeowner rents on Age with private on Age Pension income Pension $121.59 $89.74 $159.58 15% 20% 36% $31.52 $28.21 $23.95 4% 6% 6% $116.40 $81.81 $73.32 14% 18% 17% $25.79 $14.62 $19.90 3% 3% 5% +1%* $21.05 $9.13 $7.53 3% +1%* 2% 2% $40.83 $18.95 $15.12 5% 4% 3% $37.72 $21.32 $11.33 5% 5% 3% $82.11 $36.36 $21.52 10% 8% 5% $102.74 $52.40 $35.34 12% 11% 8% $35.95 $18.56 $14.48 4% 4% 3% $135.11 $50.83 $30.67 16% -1%* 11% 7% $0.12 $0.11 $0.01 0% 0% 0% $17.87 $9.43 $8.36 2% 2% 2% $53.64 $26.11 $16.26 7% 6% 4% $457.59 $822.45 $437.37 +$0.85* +$3.28* +$1.07* $3,563.96 $1,982.87 $1,895.25 +$14.20* +$3.67* +$4.60* $42,767.57 $23,794.44 $22,743.05 +$170.48* +$44.09* +$55.21*

* Percentage and dollar changes compared with the March figures

How does your spending compare?

Expenditure items

Affluent Couples

Constrained Couples

CashStrapped Couples

Affluent Singles

Constrained Singles

Single Single Couple Couple Couple who homeowner homeowner homeowners homeowners rent on Age with private on Age with private on Age Pension income Pension income Pension

CashStrapped Singles Single who rents on Age Pension

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™ September 2018

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Sponsored message from Challenger

Living longer, living smarter With life expectancy continuing to rise, older Australians need to make sure their retirement savings can last the distance.

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ustralia has an ageing population. More people are reaching retirement age than ever before and they’re also living longer thanks to medical advances and improved knowledge about how to live a healthy lifestyle. And while a long retirement is something to look forward to, it means that your retirement savings need to stretch even further.

So how will your retirement compare to previous generations?

1. Y ou’ll be retired for longer Average life expectancies in Australia have increased significantly for both males and females. Males who are currently 65 are expected to live to 86.9 and females who are 65 to 89.2 years1. In previous generations, people could expect to live another 10 to 20 years after they retired. Now, it’s common for people to spend 30 years in retirement – and in some cases, even longer.

2. Y our retirement will cost more Living longer means you’ll need more money to fund your retirement. If you look at the retirement household expenditures by tribe, you will note that homeowners on a full or part Age Pension will need $42,995 per couple to keep pace with the cost of living (current maximum Age Pension is $35,573 as at 20 March 2018). Even those who qualify for the full Age Pension and Pension Supplement entitlement, will struggle to afford meals out and holidays, with their income barely covering expenses. That’s why you need to make the most of your super savings.

3. Y our retirement savings need to keep working hard after you retire Withdrawing all your super when you retire and leaving it in cash is unlikely to provide you with enough money to fund your retirement. To maintain a healthy income, you need your super to continue working as hard as possible throughout your retirement. That may mean keeping your super invested in a diversified portfolio of assets based on the level of risk you’re prepared to take (for example, shares, property, bonds and cash) so it can provide you with regular income.

1. Challenger and Thomson Reuters, ‘Retirement and Aged Care Planning 2017-18’

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To give you the peace of mind that you won’t run out of money, you may want to consider using part of your retirement savings to set up an annuity.

An annuity can provide you with regular and stable income that is guaranteed to continue for a certain number of years or for the rest of your life – whichever you prefer. You can even elect for your annuity payment to be increased each year to keep pace with inflation.

What is an annuity?

An annuity is a secure investment that provides a series of regular payments in return for a lump sum investment. It can be used with other retirement investments, such as account-based pensions, to set up a dependable income that can last through retirement.

How does it work?

Let’s look at a case study to illustrate how an annuity can complement an account-based pension and help retirement savings last longer.

Meet Dimitri and Maria, who are both 67 and retiring. To achieve a comfortable retirement, they believe they would need an annual income of approximately $60,000 and hope to be able to spend this way for as long as possible.

They own their home, have no debts and $250,000 each in superannuation. In addition, they have personal assets worth $20,000 and they have $50,000 in the bank. They estimate that they will have ongoing essential expenses of about $42,000 a year in retirement, an amount above the maximum Age Pension of $35,573 (as at 20 March 2018) and significantly above their current Age Pension entitlement of $20,792 (based on their assets and income as at 20 March 2018).

On the advice of their financial adviser, Dimitri and Maria invest $75,000 each in a lifetime annuity, providing them with a secure income of $8202 per year2 for the rest of their lives that may rise with inflation. This ensures that should their other assets ever run out, they will be able to meet their essential 2. C hallenger Guaranteed Annuity (Liquid Lifetime) is based on a quote as at 20 March 2018, purchased with superannuation money, using the Flexible income option with standard death benefit, maximum withdrawal periods and monthly payments which are indexed annually with inflation providing a first year payment of $4,208 for Dimitri and $3,994 for Maria.

YourLifeChoices Retirement Affordability Index™ September 2018

expenses with the combination of this income and the maximum Age Pension payable.

They decide to invest $175,000 each into an account-based pension and elect to receive $29,006 in the first year of retirement.

Total income, including income earned on the money they have in the bank, during the first year of their retirement is $60,000.

The diagram below shows how this combination of investments is ‘layered’ to provide a secure income in retirement for Dimitri and Maria.

Wants (income from a combination of defensive and growth assets)

Needs (income from guaranteed income sources)

Income to pay for essentials such as: Income to pay for • food; desirables such as: • clothing; • holidays; Other • utilities; • meals out; $2000 • health expenses • entertainment; • other unforeseen costs; • emergencies Account-based income $29,006

Lifetime income $8202 Age Pension $20,792 This example is provided for illustration purposes only.

By investing in a combination of a Challenger lifetime annuity and an account-based pension, Dimitri and Maria have: • a safe and guaranteed income stream from the Challenger lifetime annuity that, in addition to their Age Pension entitlement, can help cover basic expenses for the rest of their lives and provide some protection against share market risk • variable income from the account-based pension designed to pay for the ‘nice to haves’ and maintain some flexibility • exposure to the share market through the account-based pension • inflation protection from the Age Pension and Challenger annuity.

To find out more about your retirement income options, including whether an annuity might be suitable for you, talk to your financial adviser, visit www.challenger.com.au or call Challenger on 13 35 66.

This case study relates to a hypothetical couple, and is provided for illustrative purposes only.

It is based on information that is current as at 20 March 2018 unless otherwise specified and is provided by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670, the issuer of the Challenger Guaranteed Annuity (Liquid Lifetime) (Annuities), and Challenger Retirement and Investment Services Limited ABN 80 115 534 453, AFSL 295642 (together referred to as Challenger). It is intended to be general information only and not financial product advice and has been prepared without taking into account any person’s objectives, financial situation or needs. Each person should consider its appropriateness having regard to these matters and the information in the product disclosure statement (PDS) for the Annuity (available at www.challenger.com.au) before deciding whether to acquire or continue to hold an Annuity. Any social security illustrations are based on current law at the time of writing which may change at a future date. Challenger is not licensed or authorised to provide tax or social security advice. We recommend that prospective investors seek professional advice in relation to their individual circumstances.

YourLifeChoices Retirement Affordability Index™ September 2018

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Rising energy costs and Age Pension increases in the spotlight Are cost-of-living pressures hurting retirees or is it all just talk?

Senior economist with The Australia Institute Matt Grudnoff explains the forces at work.

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fter a huge fracas that saw a new prime minister emerge, politicians are trying to convince us that it is really you and I they want to focus on. While it is unlikely that there was a single cause for the bloodletting that saw Malcolm Turnbull toppled and former Treasurer Scott Morrison installed as leader, cost-of-living pressures around electricity prices have been trotted out as one reason.

New Prime Minister Mr Morrison has charged new Energy Minister Angus Taylor with the task of reducing electricity prices. The Government now seems convinced that rising electricity prices is the issue voters are most concerned about. But is that really the case?

‘The Age Pension is linked to increases in inflation. With inflation running at low levels, the pension is also increasing slowly.’

The CPI has been running at or just below two per cent per year for almost four years, which is well below the long-term average.

For our retirement tribes, it is not very different. Just like the CPI, all our tribes’ expenses have been at or below two per cent per year over the last four years.

Does this mean that concern over cost-of-living increases is manufactured?

There does seem to be genuine concern in the community, but I think this has more to do with the level of income growth and the goods and services that are rising rapidly in price.

While average prices are not rising rapidly, neither are incomes. Incomes have been rising at a similar rate to inflation. According to Household, Income and Labour Dynamics in Australia (HILDA) data, the median income, after tax, per household peaked in 2009, dropped, then recovered slightly, but has not risen since 2014.

Now I’m going to tell you something that no politician will ever tell you. They will never tell you this because they fear being labelled as ‘out of touch’ and ‘elitist’. But the fact is that cost-of-living pressures are fairly modest by historical standards.

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20 1

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20 1

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20 1

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20 1

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20 1

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20 1

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20 0

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The Consumer Price Index (CPI) measures how prices are rising for the average household and YourLifeChoices takes a closer look at cost-of-living pressures for our retirement tribes in its quarterly Retirement Affordability Index™. Given all the sound and fury from Canberra, you might think that both the CPI and retirement affordability are running at record rates reflecting the big increases in prices.

$50,000 $48,000 $46,000 $44,000 $42,000 $50,000 $40,000 $38,000 $36,000 $34,000 $32,000 $30,000

20 0

Politicians love to talk about cost-of-living pressures and how they’re taking action to reduce them, or in the case of the Opposition, how the Government is out of touch and not suitably concerned about them.

Household income

Real equivalised* median household disposable income

* Equivalised takes into account the different incomes needed to sustain different household types.

For example a family with two adults and two children requires a larger income than a single person household.

This means that the median household can buy fewer goods and services with its current income than it could with its income nine years ago. Their purchasing power has not improved.

How well you feel financially has more to do with the difference between how quickly prices are going up compared with how quickly your income is rising.

YourLifeChoices Retirement Affordability Index™ September 2018

You’re going to be better off if inflation is three per cent and your income is rising at four per cent than if inflation is two per cent and your income is rising at two per cent. This is true whether your income is from wages, an Age Pension or an account-based pension.

The stagnation in incomes is not evenly spread. Our quarterly retirement affordability table (Page 6) shows that tribes with the lowest incomes have faced the biggest increase in their cost of living, while tribes with the highest incomes have faced the lowest increase in their cost of living. This is important because it might explain why our politicians think electricity prices are our biggest concern.

Increases in prices for various tribes 160

Price index numbers

150 140 130 120 110

Constrained Couple Affluent Couple

Se

p2 De 00 c- 1 M 200 ar 2 Ju -20 ne 04 Se 200 p- 5 De 200 c- 6 M 200 ar 7 Ju 200 n- 9 Se 201 p- 0 De 201 c- 1 M 201 ar 2 -2 Ju 01 n- 4 2 Se 01 p- 5 2 De 016 c20 17

100

Cash-Strapped Couple

Note: Index numbers show the increase in price over time. All tribes have been set to 100 in September 2001.

Each point above 100 is a 1% increase in price since September 2001. So, for example, in the current quarter, Constrained Couples reach 144 which means prices for them have increases 44% since September 2001.

Electricity is a necessity in a modern society. It is also something that is difficult to reduce when the price goes up. This means that low-income households face hard decisions such as ‘eat or heat’.

When income growth is slow, a rise in the price of electricity means less spending in other areas.

YourLifeChoices disclaimer

As with other essentials, low-income households spend a larger proportion of their income on electricity. Cash-Strapped Couples spend 4.7 per cent of their income on electricity, while Constrained Couples spend 3.8 per cent and Affluent Couples 2.9 per cent. So it follows that an increase in electricity prices has a greater effect on the budgets of Cash-Strapped Couples than on Affluent Couples.

This is equally the case for other essentials such as housing. Cash-Strapped Couples spend 29 per cent on housing while Affluent Couples spend 13 per cent.

But the other really important part of this story relates to incomes. The Age Pension is linked to increases in inflation. With inflation running at low levels, the Age Pension is also increasing slowly. Increases in income from superannuation and other investments are linked to how well business is doing. Business profits are up 10 per cent over the past year which translates into better superannuation and investment returns. This would suggest that retirees who are reliant on the Age Pension are not seeing their incomes rise nearly as fast as those who rely on super and other investments.

Combining all of this, we can see why increases in electricity prices have become such an important political issue. Those on lower incomes are seeing their real incomes fall, while essentials such as electricity rise quickly in price. With the focus almost entirely on rising prices, the slow increase in income growth is barely attracting attention.

Of course, increasing income growth is a harder task for a government to achieve. It is far easier to blame renewable energy and to talk as much as possible about reducing electricity prices.

YourLifeChoices Retirement Affordability Index™ September 2018

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Understanding your super is key to maximising your retirement income Keen to maximise the value of your super? You must understand the basics first. Olga Galacho explains what you need to know.

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or many Australians, super is a complex area that they only think about as they near retirement. We aim to help by explaining the basics about super and how you can keep your nest egg on track.

What is super?

According to the Australian Securities and Investment Commission (ASIC), superannuation is a tax-effective way to save for your retirement, where your savings are pooled with those of other fund members and invested on your behalf. Your employer must make contributions – currently 9.5 per cent of earnings – to your nominated fund if you earn at least $450 per month before tax.

There are also ways to boost your super balance by making additional pre- or post-tax contributions.

What are the main types of super funds?

There are three main types of superannuation: selfmanaged superannuation funds (SMSF), which are regulated by the Australian Taxation Office (ATO); industry funds, which are not-for-profit funds, and bank-owned or retail funds, which are managed by finance-sector companies. Industry and retail funds are regulated by the Australian Prudential Regulation Authority (APRA).

Then there are several other types of funds similar to superannuation, such as eligible rollover funds and exempt public sector superannuation schemes.

When should an SMSF be considered?

An SMSF should only be considered after receiving professional financial advice. These funds need to be managed to produce income on retirement. Generally, you would need to start with a balance greater than $200,000, which would be reinvested in incomeproducing investments, such as shares or property.

In some situations, a single SMSF could be set up to take care of the retirement needs of multiple members of a family. The members of the SMSF are also the trustees and must adhere to strict rules enforced by the ATO, which warns: “Don't set up an SMSF to try to get early access to your super, or to buy a holiday home or artworks to decorate your house. These things are illegal.”

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How are contributions made to standard superannuation funds?

Non-concessional contributions are after-tax deposits into your superannuation.

These contributions are not taxed in your super fund as long as they do not exceed a total of $100,000 a year. Spouse contributions made on your behalf will also count towards the $100,000 cap. If you exceed this cap, you may have to pay tax. If the total balance in your super is more than $1.6 million, you are no longer entitled to make non-concessional contributions.

Australians aged 71 and under who are low wage earners and have a small balance in their fund may be eligible for the Super Co-Contribution. Under this scheme, the Government will contribute between $20 and $500 a year to your fund, depending on how much you earn and the level of your own super contributions.

These also count towards your non-concessional limit.

Concessional contributions are deposits made into your superannuation that have not been taxed.

Once the contributions are in the fund, they are taxed at 15 per cent. Caps also apply to these deposits and if exceeded, tax may be payable.

Under a salary-sacrifice arrangement with an employer, the employee foregoes part of his or her pre-tax wages in favour of having the amount deposited into super.

This is often tax-effective for the employee.

How much can you contribute while working and not working?

You can contribute up to $25,000 of salarysacrificed income into your super as a concessional amount, which includes the 9.5% SGC. If your super balance is less than $500,000, and you contribute less than that cap, you can carry forward the unused amount for up to five years. You can contribute up to $100,000 in non-concessional amounts a year before attracting extra tax.

Voluntary contributions to super can be made up to the age of 74. But if you are over 65 and wish to continue contributing, you must satisfy a work test.

YourLifeChoices Retirement Affordability Index™ September 2018

How the ‘downsizer’ legislation works The so-called ‘downsizer’ legislation allows people who are 65 and over to deposit up to $300,000 into their super after selling their principal residence if they are single, or $600,000 if they are a couple.

They must have owned the home for 10 years or more and have sold it on or after 1 July 2018.

This contribution is not a non-concessional contribution and will not count towards your nonconcessional cap or the total super balance test.

When can you access your superannuation?

When you turn 65, you can access both your preserved and unpreserved super, even if you have not retired.

You can access a portion of your super when you reach preservation age, which is 55 if you were born before 1 July 1960. Thereafter, the preservation age scales up to 60 years if you were born after 1 July 1964.

What does Transition-to-Retirement mean?

From your preservation age, you can also receive a Transition-to-Retirement income stream from your super while continuing to work. The stream must be more than four per cent but less than 10 per cent of the fund balance at the start of the financial year for any given 12-month period.

Why do you need to consolidate your super into one fund?

One simple reason – you save on fees. Additionally, it may streamline the process if you were to claim from any insurance policy within a fund.

Is life insurance offered through super worthwhile?

Even before reports of misconduct emerged from the financial services royal commission, whether life insurance through super was beneficial was a YourLifeChoices disclaimer

moot point. The policies are affordable as they are automatically deducted from contributions. But ASIC points out that they offer limited cover, are not portable, can be slower to pay out, tend to end at age 65, and if you have more than one super account, you will be paying for multiple premiums.

Which is the best super fund for you beyond just returns and fees?

Many websites can help you compare funds, but not all offer a full range of independent choices.

Among the more reputable are SuperRatings, Canstar, Cannex, Chant West, Morningstar, RateCity and SelectingSuper.

The Government’s MoneySmart website recommends that you research funds before swapping and, in addition to fees and performance, compare the risk level of investment options, the type of insurance and other services offered.

How does super combine with an Age Pension?

When you become eligible for the Age Pension, your superannuation balance is counted in the asset and income tests. If you withdraw money from your super and use it to buy an income stream or deposit it in a bank, this will also be income and asset tested.

Under the income test, if you are single and receive more than $172 a fortnight in income, including from investments, your Age Pension is reduced by 50 cents for each dollar over $172. For couples, the threshold is $304. Under the assets test, Age Pension eligibility is reduced by $3 for every $1000 your assets – including super – exceed the thresholds applicable to your situation.

Whichever of these test calculations yields the lowest payment will be the amount of Age Pension you receive in addition to other income.

YourLifeChoices Retirement Affordability Index™ September 2018

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Making your super go further Superannuation is the key to decreasing reliance on the Age Pension. The Superannuation Guarantee, introduced in 1992, means most older Australians who are either retired or closing in on retirement have super. Obviously, the length of employment and salary affects the size of the nest egg, but no matter how big or small, maximising the value of your super is paramount.

That’s why we presented three financial planners with three case studies – one for each of our retirement tribes. Their challenge was to make their case study’s super go further. Hopefully, their strategies can inform you.

Future looks rosy for Affluent Couple – or does it?

Affluent tribe couple Jeff and Marion have a $420,000 super nest egg, but Emmett Wilkinson warns that without a retirement income strategy, the future looks challenging.

Case study 1 Affluent Couple Jeff (68) and Marion (62) live in Perth.

They own a home valued at $1.2 million, with no mortgage.

They have an investment property worth $550,000 with a $50,000 mortgage.

They work part-time.

They have: • $420,000 in super (Jeff has $280,000 and Marion $140,000) • $50,000 in shares Annual income NOW Rent $27,000 Part-time work $7000 Super lump sum withdrawal $50,000 Income from shares $1500 Age Pension (Jeff) TOTAL: $85,500

AFTER* $27,000 $7000 $40,000 $1500 $10,060 $85,560

*Emmett Wilkinson’s preferred strategy, which maintains income but saves on super

S

emi-retired couple Marion and Jeff* are members of YourLifeChoices’ Affluent tribe. The Retirement Affordability Index™ estimates that they need an annual income of $74,813 to meet expenses. While they have a current annual income of well over that, they will run out of super well short of their life expectancy.

One possible strategy that could improve the couple’s overall financial situation, and thus make 14

their super go further, would be a Superannuation Recontribution Strategy. This is where Jeff could withdraw his superannuation and contribute the proceeds to Marion’s superannuation account.

As Jeff is over 65, he is able to access his superannuation without restriction and any withdrawals will be tax-free. Marion is able to make nonconcessional (after tax) contributions of up to $100,000 per year, and because of her age, can take advantage of what is termed the ‘bring-forward’ rule, which is bringing forward two additional years’ worth of contributions.

This means that in one year, Marion would be able to contribute, after tax, $300,000. Marion can do this because she is under 65 and has not utilised the ‘bring-forward’ rule in the previous three years.

This strategy could enable Jeff to qualify for an Age Pension of approximately $387 per fortnight ($10,060 per annum) and he would also be eligible for a Pensioner Concession Card. If the couple were to do nothing, Jeff and Marion would exceed the assets test threshold ($848,000) for home-owner couples (assets include their cars, contents, bank account, net investment property value, Jeff’s super and shares, which adds up to $870,000 meaning no Age Pension).

As you can see, Marion’s super is not included in the total. Her super is exempt from the assets and income tests as she is below pension age (which is 66.5 years for Marion) and is not taking a retirement income stream (e.g. account-based pension) from her super account.

They could continue to supplement their income by withdrawing a smaller lump sum to maintain the

YourLifeChoices Retirement Affordability Index™ September 2018

Most couples in Jeff and Marion’s situation would have turned their superannuation accounts into retirement income streams. However, if they were to convert their super into retirement income streams Jeff would not be eligible for the Age Pension as the income stream would be treated as an asset and deemed for income testing purposes.

Using the superannuation recontribution strategy in this instance would result in additional age pension income of approximately $10,060 in year one (possibly $12,010 if shares were also sold) plus the concession card benefits. It is a clear winner.

The strategy could potentially provide the couple with up to $54,000 of extra income over the next four-and-a-half years until Marion turns 66.5 years, at which time their situation would need to be reassessed. Looking for opportunities such as this is something a good financial planner should be able to help you with.

same lifestyle and see their super last longer. While Jeff can withdraw funds from his super without restriction, Marion would need to be classed as retired to access her super.

As Marion is over 60, if she terminates her employment, she would trigger a condition of release – the technical term for being able to access her super. And again because she is over 60, no tax would be payable on withdrawals. Centrelink do not regard these withdrawals as income and if they are used to fund their expenses, then, in practice, there will be no asset test implications either.

Consideration could also be made to selling other assets prior to withdrawing funds from super. For example, if they were to sell a portion of their share portfolio, Jeff’s age pension entitlement would increase by approximately $1950 per year. This is because their assessable assets would have reduced.

Another consideration would be to sell the share portfolio to repay the debt on the investment property. As it is a relatively small mortgage, and considering their existing tax position, the mortgage isn’t providing any significant tax savings. Due to their age, Jeff and Marion would pay little to no personal income tax given their respective taxable incomes (remembering that withdrawals from super are not taxable).

YourLifeChoices disclaimer

Beyond this short-term strategy to increase Jeff’s age pension entitlement, the couple do face some longer-term issues. They are chewing through their super at a rapid rate and when Marion turns 66.5, whatever super they have will again be counted as an asset and trigger a reduction in age pension payments.

They also face a common situation for retirees in their category in that one of their most substantial assets is the investment property, which, while generating a good rental return (5 per cent per annum) is illiquid (i.e. hard to convert to cash).

I won’t be the first or last person (unfortunately) to pull out the old chestnut, ‘you can’t just sell off the bathroom’, but investment properties can present a challenge for couples needing to draw down on their capital in retirement. They would need to put some consideration into when and if they sell their investment property to provide additional capital.

The rules relating to the assets and income testing of annuities for age pension purposes are changing from 1 July 2019, and Jeff and Marion could consider this as part of their retirement strategy in the future. * Jeff and Marion are not a real couple.

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.

Emmett Wilkinson is a Certified Financial Planner who specialises in providing advice on aged care and retirement planning at Advisersure Pty Ltd in Melbourne. He has worked as a financial planner for 20 years and previously worked for the Australian Taxation Office and the Reserve Bank of Australia. Advisersure Pty Ltd and Emmett Wilkinson are Authorised Representatives (424041/319614) of MyPlanner Professional Services Pty Ltd AFSL 425542.

YourLifeChoices Retirement Affordability Index™ September 2018

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Making your super go further Can Jenny and Peter organise their income so they don’t run out of money?

Financial adviser Michael Horan was set the task of helping Constrained Couple Jenny and Peter enjoy their retirement without fearing they would run out of money.

Case study 2 Constrained Couple Jenny (70) and Peter (72) live in Brisbane.

They are homeowners with no mortgage.

They have: • $200,000 in super ($100,000 each) • $20,000 in cash Annual income NOW Super pension $10,000 Annuity Full Age Pension and supplements $35,916 TOTAL: $45,916

AFTER $7000 $5533* $35,916 $48,449

*Income after fees and charges on $100,000

R

etired couple Peter and Jenny* are concerned about maintaining their lifestyle without outliving their assets. In today’s low-interest climate, they are hoping to maximise their income without taking too much risk or seeing their hardearned savings struggle to earn interest. They believe they can live very reasonably on $45,000 per year.

They have worked hard to own their home outright and have $200,000 in super ($100,000 each) with an additional $20,000 in ‘emergency’ cash.

They have no other assets. They receive the full Age Pension (and supplements), which amount to $35,916 per year.

As such, thy are categorised as belonging to YourLifeChoices’ Constrained tribe, homeowners on an Age Pension with an estimated annual expenditure of $42,995.

Life expectancy Based on current ages, Peter’s life expectancy is 87 (another 15 years) and Jenny’s is 90 (another 20 years).

It is important to recognise that these estimates are 16

averages and many other factors such as family longevity and health history will all influence their life expectancy.

The goals • Make the money last past Jenny’s life expectancy while maintaining an annual spend of $45,000.

• Maximise fortnightly income while retaining access to the full Age Pension.

• Manage risk and volatility in the portfolio.

Current projection Using the super assets – 50 per cent is invested in cash and term deposits and 50 per cent in growth/ risk assets such as shares – it is expected that Peter and Jenny can draw down their super but it will probably run out at about the limit of Jenny’s life expectancy, or just before.

This does not suit as it may lead to a shortfall if one, or both, survive beyond the projected expectancy.

Alternatives to consider When considering options for Peter and Jenny, we don’t want to rule anything out.

Here are some alternatives my clients have proposed: • withdraw all the money and buy bitcoin • sell the home and buy another home for less in an area with reduced living expenses. This frees up more cash (and could be contributed to super using recent downsizing legislation) • rent the home and move to a low-cost country, for example, somewhere in Asia.

These alternatives were discarded because of the significant nature of the changes proposed.

Reasonable alternatives: • take slightly more risk in the portfolio and hope that the money lasts longer • consider a guaranteed lifetime annuity • reduce expenditure slightly each month • assume that as you grow older, you won’t require the same level of income.

YourLifeChoices Retirement Affordability Index™ September 2018

Solutions Based on not wanting to take more risk in the portfolio, as well as not wanting to either reduce expenditure or assume that expenses will reduce, we will explore a guaranteed lifetime annuity.

A guaranteed annuity takes a lump sum and provides a regular income for the life of the individual. There are options such as having a beneficiary receive the income for their life or receive lump sum death benefits within a certain timeframe.

An additional benefit of this solution is that it is not affected by market cycles. The market can go down by 20 per cent while the regular income will be retained. The negative aspect of an annuity is that you give up some control/liquidity of the cash and cannot access it the way you would with a normal super account.

Finally, while not relevant in Peter and Jenny’s case, annuities are treated favourably by Centrelink and aged-care facilities for assets and income testing.

Peter and Jenny can now rest easy, knowing that with these simple changes they have guaranteed themselves a portion of income for life while reducing portfolio risk.

Specifically, for Peter and Jenny, a solution would be a lifetime annuity using all of Jenny’s super ($100,000), with Peter as a reversionary beneficiary (to allow the regular income to continue to be paid to Peter in the case of Jenny’s death). This gives a regular income of around $461 per month or $5533 per year, which represents an income of around 5.5 per cent. This payment increases with inflation and continues for the entirety of Jenny’s life.

This graph compares current total income with the recommended solutions. The black dotted line indicates that with no change, the money will run out before life expectancy (red line), while the light blue and green portions show the additional income from annuities and additional years of age pension.

In this scenario, we have managed to achieve all the outlined goals.

Specifically, we have: • maintained (and slightly increased) current living standards well past life expectancy • retained full Age Pension

Income

A change to the rules relating to annuities is set to come into effect on 1 July 2019.

These rules will change the way $60,000 annuities are assessed for deeming/ asset limits. This example assumes $50,000 the annuity is set up before 30 June 2019. Any annuities purchased by $40,000 that date are grandfathered.

Outcomes of a lifetime annuity

$30,000

$20,000

$10,000

Peter Jenny

$0

72 70

74 72

YourLifeChoices disclaimer

76 74

78 76

80 78

82 80

84 82

86 84

88 86

90 88

92 90

Age

94 92

96 94

98 96

100 102 104 106 108 110 98 100 102 104 106 108

Age Pension Lifetime annuity Other income Account-based pension There is a 50% chance one of you will still be alive in 22 years Account-based pension only portfolio

Michael Horan, AFSL No.343921, is a partner at CA Financial Services and has more than 15 years’ experience in accounting and financial planning. CA Financial Services is committed to creating win-win scenarios for clients who need help optimising their financial situation and to aligning solutions with clients’ life decisions and goals.

Visit cafsg.com.au * Peter and Jenny are not real people.

• reduced exposure to growth assets and market volatility risk • structured assets in a way that is treated favourably by Centrelink and aged-care facilities, if needed.

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™ September 2018

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Making your super go further How to help Paula pay the bills and have money to spare Paula struggles from week to week to pay essential bills.

We asked financial adviser Duncan Collie how he would improve her situation.

Case study 3 Cash-Strapped Single Paula is 67.

She rents in Adelaide.

She receives a full Age Pension ($907.60 per fortnight, including supplements).

She works as a cleaner and is paid $172 per fortnight.

She has: • $22,000 in shares • $78,000 in super • $15,000 cash • $10,000 of assets (not deemable) Annual income NOW Super/pension Full Age Pension (and supplements) $23,823 Work income $4472 Rent assistance TOTAL $28,295

AFTER $5000 $23,823 $6500 $3504 $36,779

P

aula* is a member of the Cash-Strapped tribe – retirees who rent and receive an Age Pension. YourLifeChoices estimates in its quarterly Retirement Affordability Index™ that her total annual expenditure is $22,743.

At 67, Paula would expect to have many years of retirement ahead of her. Life expectancy has increased considerably and retirees need to plan their finances with a longer timeframe in mind.

Paula could consider selling her $22,000 of shares and contributing the funds into her super, although there may be tax consequences. To do this, she needs to have met the work test, that is, to have worked at least 40 hours within 30 consecutive days during the same financial year that the contribution is made. She must also be between 65 and 75 years. She will be limited to an after-tax contribution to super of $100,000 per year.

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Paula could roll the funds in her super into an account-based pension. This account could pay her a regular income to top up her Age Pension and work income. Due to her life expectancy, it is important that she is able to receive some capital growth in this pension account to make it go further. And she must be aware that she needs to withdraw a minimum of five per cent of the balance of her account-based pension per annum.

She could consider withdrawing all her funds from super as a lump sum instead of starting an account-based pension. However, she would then have to invest those funds outside of super, which might not be as tax-effective. If she left the funds in a bank account, they would earn low interest and potentially lose real value over time due to the effects of inflation.

As Paula draws down her income from her pension, and considering the effects of inflation, the fund could run out long before she would like it to.

Capital growth would go some way to stretching the life of the fund.

To increase her chances of receiving capital growth, Paula could include some growth assets in her super investment strategy. Growth assets generally include shares, property and infrastructure.

The proportion of her funds that should be invested in growth assets will depend on her risk profile and how much volatility she is willing to accept.

She can change the amount she draws down from her account-based pension at any time as long as she withdraws the minimum five per cent per annum.

She can also access lump sums whenever she wants, giving her control and flexibility over her income. She could use online calculators to assist her in determining how long her account-based pension might last based on how much she wishes to draw down.

Paula will continue to receive the full Age Pension of $916.30 per fortnight as she is below the minimum

YourLifeChoices Retirement Affordability Index™ September 2018

Super does not automatically become part of someone’s estate on their death and is generally paid directly to a beneficiary. Only certain people can be nominated as beneficiaries for super: a spouse (including de facto and same sex), children of any age, a person in an interdependent relationship with the deceased, and personal legal representative (the executor or administrator of your She should apply for Rent Assistance through the estate). Paula can make a binding or non-binding Department of Human Services. As a single renter nomination. A binding death receiving an Age Pension, she benefit nomination will provide could receive up to $134.80 the most certainty.

‘As Paula draws down her per fortnight on top of her Age income from her pension, She could also consider Pension payments. and considering the effects of undertaking a re-contribution With her Age Pension, rent strategy by withdrawing all her inflation, the fund could run super as a lump sum and assistance, extra employment income and the funds she will out long before she would like re-contributing these funds draw from her account-based back into super. If her it to.’ pension after selling her shares superannuation contains and putting that money into a taxable component, this super, Paula can boost her annual income. strategy can help reduce the potential tax payable if her super is passed on to her beneficiaries in the Furthermore, the money paid from her accountevent of her death. based pension is considered non-assessable income for tax purposes, and with the seniors’ and Duncan Collie is a financial planner with AustralianSuper. pensioners’ tax offset as well as the low and middle- * Paula is not a real person.

DISCLAIMER: This article has been sponsored by AustralianSuper Pty Ltd ABN 94 006 457 987, income tax offsets, she will not pay any tax on her AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898. The views expressed are those total income. of Duncan Collie, Authorised Representative of Industry Fund Services Limited ABN 54 007 016 asset and income thresholds that determine her benefit amount. Although she expects to earn $172 per fortnight through her work as a cleaner, under the Work Bonus scheme this income will not be assessed by Centrelink under the pension income test. In fact, Paula could earn up to $250 per fortnight without affecting her Age Pension.

But she should nominate a beneficiary for her super to ensure that her fund knows who she wants her super to go to in the event of her death.

YourLifeChoices disclaimer

195 AFSL No 232514. This information may be general financial advice which doesn’t take into account your personal objectives, situation or needs. Before making a decision about your super, you should think about your requirements and refer to the relevant Product Disclosure Statement. The case study is provided for illustration purposes only and isn’t a representation of the actual benefits that may be receive or fees and costs that may be incurred.

YourLifeChoices Retirement Affordability Index™ September 2018

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Government update YourLifeChoices keeps you up to date with retirement income changes.

From 20 September 2018, the following pension payment rates apply: Maximum Age Pension payment rates

Previous Current Single base $826.20 $834.40 Supplement $67.30 $67.80 Energy supplement $14.10 $14.10 Total $907.60 $916.30 Couple (each) Base Supplement Energy supplement Total

$622.80 $50.70 $10.60 $684.10

$629.00 $51.10 $10.60 $690.70

Increase $8.20 $0.50 $8.70 $6.20 $0.40 $6.60

Pension supplement The supplement is paid as part of certain regular fortnightly income support payments to help eligible recipients meet the costs of daily household and living expenses.

Pension supplement – basic amount (for those receiving a pension while overseas)

Previous Current Increase Single $23.40 $23.60 $0.20 Couple separated $23.40 $23.60 $0.20 Couple (each) $19.20 $19.40 $0.20 Pension supplement – minimum amount (for those paid a pension under the transitional rules)

Previous Current Increase Single $36.10 $36.30 $0.20 Couple separated $36.10 $36.30 $0.20 Couple (each) $27.20 $27.40 $0.20

Asset and income test thresholds Changes to income and asset thresholds took effect on 20 September.

The new Centrelink income test limits for full age pensioners are: Situation

Single Couple (combined) Illness separated (couple combined)

For full pension /allowance (per fortnight) up to $172 up to $304

For part pension(pf) From 1 July 2018

up to $304

less than $3969.20

less than $2004.60 less than $3066.80

And the new asset test limits for full age pensioners: Situation Single Couple (combined) Illness separated (couple combined) 20

Homeowners $258,500 $387,500

Non-homeowners $465,500 $594,500

$387,500

$594,500

Commonwealth Seniors Health Card From 20 September, to pass the income test, you must earn no more than: $54,929 a year if you’re single – $1130 increase $87,884 a year for couples – $1808 increase

Aged Care royal commission Prime Minister Scott Morrison has announced a Royal Commission into Aged Care Quality and Safety. It will look at: • the quality of care provided to older Australians and the extent of substandard care • the challenge of providing care to Australians with disabilities living in residential aged care, particularly younger people with disabilities • the challenge of supporting the increasing number of Australians suffering dementia and addressing their care needs as they age • the future challenges and opportunities for delivering aged care services in the context of changing demographics, including in remote, rural and regional Australia.

Anyone with concerns about the quality and safety of aged care can contact the Aged Care Complaints Commissioner on 1800 550 552 or lodge a complaint online.

Tax return deadline If you earnt any income in the 2017-18 financial year, you must lodge a tax return by 31 October.

To lodge online, you need a myGov account linked to the Australian Tax Office (ATO).

If you are completing your own tax return and need an extension, contact the ATO as soon as possible.

Most registered tax agents have special schedules and can lodge returns for clients later than 31 October.

YourLifeChoices Retirement Affordability Index™ September 2018

YourLifeChoices disclaimer