Q. I’d like to travel overseas for six months. Do I need to wait until Age Pension age? I’m only 61 and really want to head off now.
That’s the question that Anishka posed a few weeks back. She’s single, 61 and has a strong desire to enjoy extended travel experiences while she’s young enough and fit enough to make the most of them. Born in Sri Lanka, her family emigrated to Adelaide when she was a teenager. She’s keen to go back there and spend time with extended family, learning more about her culture and heritage. Her plan is to go for six months, taking her time travelling through South East Asia starting first in Singapore.
But that all seems a long way off from her current situation where she is working part time. A sense of frustration that she doesn’t want to delay her dreams for years made her reach out to Retirement Essentials adviser Sharon Sheehan recently.
Briefly, Anishka has $540,000 in super and an additional $140,000 in savings outside super (part in a fixed term cash account and some in shareholdings). Her casual work brings in $25,000 a year but she will obviously need to resign if she wants to leave the country. She lives in an apartment which is fully paid off.
On the face of it, Sharon thought that Anishka could afford to resign and travel sooner rather than later. There were a few ways she could approach this. During their 60-minute consultation, this is what they explored.
First off they discussed whether it was wise for Anishka to start a Transition to Retirement (TTR) strategy which would require her to drawdown between 4% and 10% of her super balance each year (i.e. $21,600 – $54,000). Unlike an Account-Based Pension where the investment earnings are tax free, earnings in a TTR are taxed at 15%.
Anishka also had questions about her retirement income needs and average amounts that other people her age needed in retirement. Sharon shared two recent benchmarks for her to consider.
In a consultation she assisted Anishka to enter her basic information into the Retirement Forecaster and they could see that Anishka could live off her savings, drawing down $40,000 per annum quite comfortably. Next they re-ran the sums, looking at annual drawdowns of $50,000 – again this showed that she could increase her annual expenditure to $50,000 without running out of money. This would cover her travel expenses every year until her chosen year of 2035, while still maintaining her desired level of income in retirement. Additionally our Retirement Forecasting tool showed that she was still almost certainly going to continue to maintain some access to liquid capital throughout her retirement years.
After discussing further the rules of the Transition to Retirement, Anishka decided to rule this out.
She had originally thought that might be her only option. But she wanted to know she could fully retire from work and a TTR is really only for those who don’t permanently retire. The additional tax paid and less flexible withdrawal rules were crucial factors. Not only did she reach the conclusion during the meeting that she doesn’t need a TTR, but also that judiciously drawing down her own savings across the years was both doable and sustainable.
Below is the Retirement Forecaster graph which shows how Anishka will initially fund herself from her private savings, then super through an Account-Based Pension before the Age Pension becomes available to her after age 67.
Sharon was really happy she’d managed to assist Anishka’s decision-making and give her the confidence to pursue her dreams sooner rather than later. She feels this is a common challenge for many would-be retirees:
‘Retiring before reaching Age Pension age can be an anxious decision, as you need to use your own funds to provide your desired income until you reach Age Pension age and have some Centrelink pension income to supplement your retirement income.
Wanting to spend your nest egg is an exciting decision but can sometimes fill retirees with trepidation. What if you can better understand the financial position you could be in to help you plan ahead:
Would you continue to save your retirement funds ‘just in case? Or would you reach for the travel brochures?
Our job is to help those who are planning to retire and pursue other activities to more thoroughly understand how their savings can combine with entitlements to ensure they can cover their living expenses and have peace of mind.
The $330 consultation provided peace of mind for Anishka that, instead of continuing to work, or holding on to her savings for a possible rainy day, she can start her adventures in a few short months.’
And one last thing
Because Anishka is expecting to apply for an Age pension in six years’ time when she is turning 67, she needs to bear in mind the residency rules. To successfully apply, she will need to have been an Australian resident for 10 years in total, with no break in at least five years. If she plans to spend long periods of time overseas, it’s handy to know this rule beforehand.
You, too, can explore your own travel dreams and income options using the Retirement Forecaster with Sharon, Megan or Nicole, in a one-hour guided consultation.
What about you?
Are you pining for extended travel adventures as well?
Or have you maybe already enjoyed one?
How did you go about planning your income?
Was it difficult or did you get it right?