News and Articles

Can Alice retire while still working?

There was great feedback on our article about peak retirement a few weeks ago. It seems that many Retirement Essentials members are planning on working longer, but not necessarily harder! As a consequence, our advisers have had many consultations helping both singles and couples to organise their finances to maximise their ongoing retirement income. Today we look at the way the transition to retirement is changing for many Australians and how they can use the rules of both the Age Pension and super to ensure they get their best financial outcome As mentioned, ‘peak’ retirement age is now just over 66 for men and nearly 65 for women. This is much later than previous decades and there are a few factors involved. Most recently the Covid pandemic forced workers across the globe to stay home. Those that could, continued to work and thus the new trend to Work From Home (WFH) has become a reality for workers of all ages. In a sense this has meant an easing of many aspects of work, including commuting, the need to dress formally, costs associated with attending an office or workplace). For many people working from home is simply easier. For this reason, many older workers are finding it attractive to continue.  However, believing that choosing a retirement or transition to retirement date is available to all is incorrect. So called ‘knowledge workers’ find it easier than most to work from anywhere – be it home, a holiday house, a caravan park or a friend’s dining room table. Those who do manual work do not have the same luxury – jobs such as cleaners, hairdressers and builders labourers usually have to turn up! And health, of course, remains the wild card, with around 40% of retirees leaving the workplace due to ill health, caring duties or redundancies. Life is not fair, and this is ongoing evidence of that fact. But if you are one of the fortunate 60% who do get to time their work exit, how do you use the rules in your favour? As a firm believer in the show, don’t tell principle, here’s a very brief overview of the rules of a Transition-to-retirement, and more importantly, how Nicole was able to support Alice to map a way of achieving her main life goals.

Retirement income certainty: Is this achievable?

And should you be ‘pushed’ into a retirement income product. Would that be in your best interests?

At the heart of most retirement wants lies the desire to have a strong degree of control, in the form of a secure, dependable retirement income. No surprises here. Volatility in financial markets such as that experienced during the GFC are recent memories of sudden losses that affected many retirees adversely. With the exception of the minority of retirees on a Defined Benefit Pension (DBP), the income of many older Australians remains strongly tied to the performance of financial markets, as that is where their superannuation is invested.

The Federal Government has recognised the concerns held by retirees and is expecting that super funds will engage more with their members, support their decision-making to achieve the best retirement income outcomes possible. This, in a nutshell, is what the Retirement Income covenant (a recommendation by the 2020 Retirement Income Review) requires. But the regulators believe the funds are too slow in their support of members. A recent Consultation Paper has included a template for a ‘generic ‘Lifetime Income Stream’ as an example of a product funds could offer members so that members could achieve more predictable income more simply.

The language around this offering is that super funds need to do more to ‘nudge’ members towards such a form of retirement income. It includes suggestions that members be defaulted into such a product, meaning if they do nothing else their super would be moved to a government approved Lifetime Income Stream. Defaults can be ‘hard’ – meaning forceful – or ‘soft’ meaning they are a last base action in the absence of any other activity by the member.

Peak retirement age: How long would you want to work?

More older Australians are staying in work for longer, creating a new ‘peak’ retirement age, according to a new KPMG report.

Analysis by KPMG Urban Economist, Terry Rawnsley, suggests that Australian workers are retiring at their oldest age since the 1970s. This higher expected retirement age has remained unchanged over the past two years, which suggests a major shift since the Covid pandemic.

The expected retirement age for men is now 66.2 (highest since 1972).

The expected retirement age for women is now 64.8 (highest since 1971).

Drivers for these changes are increased flexibility in what Rawnsley calls ‘knowledge intensive’ roles, also the increase in working from home which has allowed many older Australians to ‘semi-retire’ or work from home or a holiday location.

Whilst it seems that older workers ‘filled gaps’ during the Covid years, the labour market has since tightened with the return of international migration and growth in the under-55 labour force.

More women are also working full-time with the expected age of retirement from full-time work increasing by 12 months. Somewhat conversely, the later age of retirement for men is seen to have been encouraged by increases in part-time retirement. Rawnsley noted, however, that:

“Even in a tight labour market, we may have reached a plateau in the expected age of retirement, suggesting we cannot expect older workers to continue working longer. This is because we simply can’t find enough older workers to sustain the growth that occurred during the COVID-19 era.”

Five things you didn’t know about Account-Based Pensions

Recent Treasury information revealed that 84% of retirement savings is held in Account-Based (or allocated) pensions. Yet responses to a survey conducted by AMP suggested that 70% of over 50-year-olds do not understand what an Account-Based Pension (ABP) is. How can this be so? Is it possible that some retirees have ‘rolled over’ their super into an Account-Based Pension, but do not fully understand how such an account works? Yes, is the short answer. Many aspects of superannuation remain both complex and confusing. Today we are revisiting the topic of Account-Based Pensions and share five things that you may not know – things that may help you to better understand some of your own options when it comes to withdrawing funds from your own super account.

Does this Age Pension rule need fixing?

Last week we revealed a little known fact about the Age Pension – and that is, how very unfair the asset test rules are for renters and single renters in particular. We had a lot of media attention following the publication of this Age Pension anomaly. Our team has also had a lot of feedback on how this works. We’ve read your comments and had discussions about whether this inequity needs urgent attention.  

Our conclusion is that yes, the Age Pension rules do need to be altered – urgently – to ensure that all older Australians who apply for the Age Pension are treated equitably.

Which investment maximises your Age Pension?

There are many ways of saving for your retirement.  You can pay off your home, put money into super, an investment property or managed funds. Perhaps invest in art, cars or fine wine.  I’m not a big fan of those last three, unless you have real expertise in the field, but some people do it. 

There are pros and cons to each of these and many people combine them to help ensure a financially secure retirement.  Owning your own home and having money in super is a really good combination as both have tax advantages.

But what happens if you decide to put all your savings effort into just one of these? Centrelink will treat you very differently and could give you a different Age Pension entitlement.  Here’s how it can work.

Federal Budget 24-25: Here’s what retirees need

Federal Budgets can seem a long way removed from our day-to-day lives. Telephone book number expenditure is often quoted on some very abstract projects (infrastructure? cyber safety? border security?) which are hard to relate to. But the money that is allocated in the annual budget will eventually have a major tangible impact on your quality of life; your health, wellbeing and retirement affordability.

That’s why the team at Retirement Essentials has strong views on the things we think could be done to make a huge difference for older Australians. Yes, budget spending is current account (spending money raised from taxes from those currently working). So there is always some discussion around the ‘fairness’ of using revenue from younger taxpayers to fund more services for older Australians. This can be a false argument, though, as nearly every older Australian has paid more than their fair share of investment, across the decades, in roads, airports, childcare and the environment to ensure a better future for younger generations. 

Our team also isn’t advocating massively expensive projects (no AUKUS here!). Instead we are looking at the ways the current retirement income system could be improved – for very little outlay. Ways to ensure that retirees are able to remain active and productive for much longer. This includes allowing them to work more – which would significantly benefit the nation’s productivity if it came to pass. 

So read on for our thoughts on what Treasurer Jim Chalmers should announce on Tuesday 14 May – and we encourage you to share your thoughts on anything we may have missed. It’s helpful to remember that the Retirement Essentials’ team is in touch with every day retirees, every working day. This means that we are fully exposed to your concerns, needs and annoyances when it comes to managing your retirement income. As always, we’re on your side when it comes to making Australia’s retirement income system work better, sooner.

Doing the sums: What’s needed for an affordable retirement?

Most of us are open to doing the maths and setting goals if we believe those goals are achievable. Resistance can set in, however, if we think that the targets are unrealistic. It could be that this has become the case with the commonly accepted quarterly ‘Retirement Standards’.
These Retirement Standards (published by the Association of Super Funds Australia or ASFA) were updated late last month, to reflect price changes through to 31 December 2023.
The Retirement Standard suggests two levels of retirement lifestyle; modest and comfortable.
The table below contains the suggested amounts required per week and per annum for those aged 65-84, for each of these retirement lifestyles.
Advocacy group, Super Consumers Australia (SCA) also shares targets for retiree spending. These targets have three levels, low, medium and high which are listed in the table. We’ve also included the full Age Pension rates (including supplements) and median super rates at Age Pension qualification age and when many Australians retire (ages 65-69).

The reason for including these seemingly conflicting amounts is to set the scene for a discussion about how YOU can work out what is a reasonable spending pattern in retirement and whether your current savings will allow you to maintain this cashflow level.

Work Bonus credits: How much can you actually earn?

Do you, too, find the Work Bonus credit as clear as mud? We suspect this may be the case because of the volume of questions we receive on this top. It seems that many Retirement Essentials’ members are simply bamboozled by what should be a straightforward calculation.

The following explainer of the Work Bonus is possible because our Head of Customer Services, Steven Sadler, has taken the time to step us patiently through the rules. Again! Someone send this man some chocolates now!

We’re not trained for retirement

With the footy season underway, I thought I’d share a favorite story:  I was lucky to spend a few moments alone with Geelong Captain Joel Selwood, at a 2013 Grand Final Day event. He was pretty subdued as Geelong had missed the big game due to a memorable 5 point Preliminary Final loss to the Hawks.  The Cats had been ahead 20 points at three quarter time but faced a resurgent Hawks to lag by six points with seconds to go. Geelong’s Travis Varcoe had the opportunity to tie the score when he kicked from 30 metres in front.  The kick sailed right to record a minor score..and the game was lost.

I said, “great year, Joel.  Hope the team isn’t going to give Travis Varcoe too hard a time.”  Joel simply said: “Well, we’re trained to get those.”

That short reply said a lot.  Still hurting.  High expectations.  Incredible intensity and competitiveness. And even though we’re trained over and over, we professionals still miss.  We make mistakes.

Imagine then that you were playing a really important game, but one you’ve never played before. Maybe watched a match once or twice from the grandstands.  You don’t know the rules —and they’re really complex.  And have never been trained.

That’s what going into retirement is like for most Australians. 

It’s not a game they’ve played before; it’s got complex rules; and they haven’t been trained.  And with the small number of financial planners, and the very high costs of traditional financial planning (typically $3500-$5,000), there’s very little affordable coaching staff available —except to the wealthy.