In Australia, once you retire, you’re expected to access your superannuation to at least partly fund your living expenses in retirement. That means your superannuation is assessed as part of your financial resources to determine how much, if any, Age Pension you could collect.
Many will recall the biblical story of Pharaoh’s dreams, which were interpreted to forecast seven years of famine, preceded by seven years of plenty. That story is, arguably, the first explanation of economic cycles.
‘Twenty years ago, retirement was still a fixed point in time—you fully retired and went on a cruise to begin a life of leisure for your vision of retirement. It’s very different now.’
Financial advice is important in planning for retirement. But not everyone wants to go to a financial planner without understanding the system. Fortunately, there’s a way of doing that. Thanks to the Australian government.
The Age Pension income test uses your ‘deemed’ financial income rather than your actual income from your financial assets. Deeming assumes your assets will earn a set rate of income, no matter what they really earn and is part of the income test used to work out income support for Aged Pensioners.
Australia’s Age Pension is intended to protect seniors from living in poverty if they have no resources of their own to use. However, the amount of Age Pension payable is reduced from the full rate if the senior has assets or other income above certain levels.
There’s more to life than money, but understanding some basic concepts helps lay the foundations for a lifetime of learning that helps you better manage your financial affairs.
The YourLifeChoices Retirement Affordability Index aims to help you understand how much money you currently need to live at various levels and lifestyles in retirement. In this issue, there’s a review of the impact of longevity on retirement.
A growing number of people are retiring outside of Australia, with some Asian countries being popular choices. For some, it’s because the cost of living is much lower there. Others are moving back to where they lived during an earlier phase of life.
Centrelink uses a process that assesses both your assets and your income and whichever test reduces your age pension rate the most is what is means tested. In other words, the test that hits you the hardest is the means test applied.