Often when calculating retirement income, we make assumptions that are simply wrong. This is not necessarily caused by any lack of financial literacy. It’s because the rules can be less than obvious and no matter how much research we do, we can still miss something critical.
This was the case with two of Sharon Sheehan’s clients this week. Let’s call them Mark and Ros. Mark is 59, Ros is 63 and they have a Self-Managed Super Fund (SMSF) which Mark has actively managed over the years. He knows a lot about super, finance and retirement income, so they contacted Sharon as a way of double-checking their plans, rather than thinking they were headed in the wrong direction.
Sometimes it’s good to be wrong. And some of Mark’s assumptions weren’t quite correct. After learning more about their situation in a first meeting, Sharon was able to share a different option, one that would mean over the next few years they would be $50,000 better off. Here’s how it worked.
Mark’s role at work has just been made redundant. They are unsure if they can afford to retire. Mark will receive a $100,000 redundancy payment in December 2024, and he can access super when he turns 60 (in May 2025). Their joint super is $750,000 and they have another $75,000 in financial assets. They are (debt-free) homeowners, currently spend about $85,000 per annum and would like to live a ‘good’ life in retirement. They had two appointments with Sharon, in the first they shared a spreadsheet that Mark had created, showing a desired annual income of $105,000 through to age 90 (for Ros) and 86 for Mark.
Mark was keen to take advantage of tax concessions by moving his super to decumulation as soon as possible (age 60).
In a second meeting this past week, Sharon was able to demonstrate how they can spend their desired amount of $90,000 per annum (today’s dollars) every year to ages 86 for Mark and 90 for Ros. Mark was aware that Account-Based Pensions (ABPs) are tax-free and so wanted to commence one in his SMSF, but he wasn’t aware of implications for Centrelink entitlements.
In the subsequent meeting they adjusted spending goals and wished to reduce their exposure to risk/ growth assets in their projections, so Sharon used a lower market risk level to do the calculations.
