Provided by Mercer: 12/3/09
That's the question many retirees are asking: here are five things to think about.
Figures recently released by research house SuperRatings that found balanced funds lost, on average, a further 1.85% in January 2009.1 Unfortunately, many Australians may now be looking at a second consecutive negative year return on their superannuation.
The conventional wisdom is that markets will recover (and, historically, they’ve recovered strongly after a downturn) and that it’s just a matter of time – but what do you do if you don’t have time to wait out the downturn? That’s the question many retirees are asking. While there’s no magic formula, here are five things to think about.
1. Draw down less of your pension
In February, the Federal Government announced relief from minimum pension draw down requirements for the remainder of this financial year.
If legislated, this will mean that the minimum pension income a person must receive for the 2008-09 financial year will only have to be 50% of that which was originally calculated on 1 July 2008.
For example, if a person's minimum income was calculated as $20,000 on 1 July 2008, then their 'new' minimum income is calculated as only $10,000. As you may have already received more than this, you can cease receiving your pension income.
This optional measure was introduced to ensure retirees don’t have to ‘sell’ investment assets and realise losses in a depressed market. As a pensioner can receive their pension income on an annual basis, this means that they don't have to receive their 2009/10 financial year's pension income payment until 30 June 2010, which allows time for stockmarkets to recover. This is, of course, only possible if there is other money to live on.
2. Supplement your income with part-time work
Retirees may be able to earn extra money without necessarily needing to pay tax on it or have it affect any government benefits they are receiving.
For example, a single pensioner may have income of around $28,800 before any income tax is payable. Tax offsets, such as the low income tax offset, mature age worker tax offset and senior Australians tax offset, help reduce the tax bill to zero. Also, according to Centrelink rules a single pensioner is allowed income of $138 per fortnight without it affecting their government pension.
3. Review the asset allocation of your pension
While it’s important to remember and apply long-term investment goals, it may also be appropriate for retirees to set aside some of their pension so payments are being drawn down from cash or fixed interest, rather than from growth assets (such as shares and property) while the market is very weak. However, whether or not this is appropriate will depend on an individual’ssituation, needs and goals. Retirees should consider speaking to a licensed or appropriately authorised financial adviser before making any decisions concerning their super or other investments.
4. Consider your Centrelink eligibility
Many retirees who weren’t previously eligible for the age pension now are. The value of many of their assets may have declined and this means some retirees may now be eligible for an age pension for the first time.
It’s not just the income that’s of value when you are entitled to an age pension. The additional benefits, such as access to the Pharmaceutical Benefits Scheme and one-off bonus payments from the Federal Government, may make a big difference.
5. Review budgets
At any age, a budget is a good thing to have and it’s also valuable, as you move through life, to check that what you are doing with your money is still appropriate for your life stage.
Know where your money goes and the difference changes in buying behaviour can make. Some ideas which may help include:
- Shopping weekly or fortnightly for groceries to reduce impulse buys
- Wait for sales - do you really need it now?
- Consider generic brands that cost less
- Drive a smaller car and save on petrol and insurance
- Review your insurances to receive any discounts available
- Consolidate or package your phone bills to receive any discounts available.
Again, what is appropriate for an individual will depend on their circumstances, needs and goals.
More information
- To speak with a Mercer financial adviser about how to help make your retirement savings last, call 1800 633 403.
- Try our budget planning tool
- If you're interested in adjusting the pension income you're receiving, contact your super fund.
1 January super returns resume where 2008 left off, SuperRatings, 23 February 2009
This information has been prepared by Mercer (Australia) Pty Ltd ABN 32 005 315 917 for general information only. The information does not take into account your personal objectives, financial situation or needs. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult a licensed or appropriately authorised financial adviser before making any investment decision.
