Is retirement planning set and forget, asks Philippa?

Philippa asked us an interesting question last week. She’s divorced, aged 67, and in July this year she stepped back from full-time work to help with her grandchildren and volunteer.

She receives a part Age Pension ($18,000 per annum) and is topping this up with extra income from her Account Based Pension.  She has about $335k in her account based pension and is drawing out ($2000 per month, $24000 per year). So, with an anticipated annual expenditure of $38,000 she has the basics covered with a $4,000 buffer for the unexpected.

She would like to know how frequently she should review the settings put in place so recently.

The answer is not straight forward. As with many important financial decisions, it really depends on a number of individual factors.

Let’s start by breaking Philippa’s question down into its core components.

It’s clear that Philippa has reached preservation age and has her two main income streams organised and underway.

The most important factor involved in the frequency of her retirement income reviews are therefore:

• Age Pension eligibility
• Sustainability of her Account Based Pension income i.e. the investment success of her super savings

Reviewing Age pension eligibility is relatively straightforward for our members.

You already receive regular updates on pension rules and rates, so you can rest assured that you will be the first to know if you will be getting an Age Pension ‘pay rise’, or if eligibility rules on income or assets are changing, well before this is applied.

Some of our members also like to check their eligibility on a regular, ongoing basis which they can do on our eligibility calculator

This is because they may be due for an increased pension entitlement. For instance, based upon the deprecation of the family car. Your car is an assessable asset and so the fact that it is most likely worth less every year means your Age Pension entitlement may increase.

Philippa’s second Retirement Income Stream is her Account Based Pension. She currently has almost $335,000 in her fund. This is nearly twice as much as the median super savings amount for women, so she is doing better than many.

Her initial directive to her fund was to pay her the above-mentioned amount of $2,000 a month (which marginally exceeds her minimum drawdown rate for account based pensions based on her age). As noted, this is currently more than enough when combined with her Age Pension entitlement, to cover her needs.

As long as her super fund continues to perform well, her $335,000 will last around another twenty or so years. By the time she 75 or 76 however she will have moved from a part pension to the full age pension.  She will still be supplementing her age pension with the remainder of her account based pension. Along the way she is aware that she can perform occasional work projects, leveraging the work bonus of $7800.

Philippa worked with a planner to put her retirement income streams in place. Her decision to do this, as well as the mix of Age Pension and Account-Based Pension are the aspects of retirement income that she can fully control.

What she cannot control, however, is external events. These include pandemics, cost-of-living increases, and share market volatility.

So whilst she can feel secure that her retirement income has been carefully planned, a 12-month or 14-month review of these settings could be prudent.

What did Philippa take away from her discussion with her adviser?

• Smart decisions taken with qualified advice can mean that you sleep well at night.
• But things can change, as we have all seen in the past two years. Reviewing your retirement income settings and projections on a semi regular basis makes a lot of sense.

Want a one-off chat about this with a qualified adviser?

This article is provided by Retirement Essentials Representative Number: 001260855.  We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859.  This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read  any relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.