Retirement Planning

Presented by Silas Dingiria

DisclaimerThe following information is general advice and was prepared without taking into account your objectives, financial situation or needs. Therefore you should consider the appropriateness of the advice in light of your own objectives, financial situation or needs before acting on the advice.

An AvSuper Product Disclosure Statement on any financial product mentioned in this document should also be obtained and read prior to proceeding with an investment decision.

Federal Budget 2014

update

Increase to SG contributions

The Superannuation Guarantee increases to 12% to be delayed.

From 1 JulySuperannuation Guarantee (SG) rate

(%)

current law Budget proposals2014 9.5 9.52015 10.0 9.52016 10.5 9.52017 11.0 9.52018 11.5 10.02019 12.0 10.52020 12.0 11.02021 12.0 11.52022 12.0 12.0

Increasing concessional contributions caps

Increase concessional cap to $35,000 per financial year

• For members over 50 from 1 July 2014

Indexed cap expected to reach $35,000 for all age groups by 1 July 2018.

Increasing non concessional contributions caps

Increase in non concessional cap to $180,000 per annum and $540,000 (bring forward provision)

(this means members can contribute $540,000 in a financial year but are then excluded from making non concessional contributions for three years. This provision is only available to members who are under 65 years old)

Effective 1 July 2014

Excess non-concessional contributions withdrawal

Withdraw amounts above the limits and their earnings

Pay marginal tax rate on the earnings

AvSuper: for many this means reduced tax and no penalty on excess contributions

For contributions made after 1 July 2013

Age pension changes

Pension age increasing to 70

•For people born after 1 Jan 1965

•Phased in for people born after 1 Jan 1958

•No impact on preservation age

Age pension changes

1. Indexed by the CPI from 1 Sept 2017

2. Eligibility thresholds freeze 1 July 2017 to 30 June 2020

3. Senior supplement ends June 2014

4. Reduced asset testing deeming thresholds from 20 Sept 2017

5. Untaxed super counted as income for Seniors Health card

Other changes

1. Budget repair levy for high income earners (over $180,000)

2. From 1 July 2016, ADF members could choose to roll into AvSuper

3. Agreement with India to simplify super for seconded workers

4. Non-pension payments not indexed for 3 years from 1 July 2014

Government assistance

Aged Pension

– Retirement incomes policy– The Three Pillars• Compulsory Super +• Means Tested Age Pension +• Voluntary Savings and Super

– Safety net principle

Changing Life stages

0 10 20 30 40 50 60 70 80 90 100

1929

1969

2009

Change in life expectancy over 80 years in Australia

63

71

Source: United Nations Statistics Division, KPMG

82

Life expectancyCurrent age Male (years) Female (years)

55 27.3 30.8

56 26.4 29.9

57 25.5 28.9

58 24.7 28.0

59 23.8 27.1

60 23.0 26.2

65 18.9 21.8

70 15.0 17.6

80 8.5 10.1

90 4.2 4.8

Released: 10 November 2011 Australian Bureau of Statistics

Access to the Age Pension

Affects people born Age Date

1 July 52 to 31 Dec 53 65 ½ 1 July 2017

1 Jan 54 to 30 June 55 66 1 July 2019

1 July 55 to 31 Dec 56 66 ½ 1 July 2021

1 Jan 1957 67 1 July 2023

1 Jan 1958 to 31 Dec 1959 67 ½ 1 July 2025

1 Jan 1959 to 31 Dec 1960 68 1 July 2027

1 Jan 1961 to 31 Dec 1962 68 ½ 1 July 2029

1 Jan 1963 to 31 Dec 1964 69 1 July 2031

1 Jan 1964 to 31 Dec 1965 69 ½ 1 July 2033

from 1 Jan 1965 70 1 July 2035

Your Pension Rate

• Base PensionPLUS

• Pension Supplement– Pharmaceutical allowance– Telephone allowance– GST component– Can opt to receive supplement quarterly

MINUS

• The effect of income or assets

Centrelink age pension rates

Current Age Pension*:•Maximum Age pension for singles = $842.80 per fortnight •Maximum Age pension for couples = $635.30 per fortnight each

*Age Pension is indexed on 20 March and 20 September each year. Above rates include pension & clean energy supplements

Single Couple

Lifestyle Modest Comfortable Modest Comfortable

Income PW $446 $810 $642 $1,108

Income PA $23,283 $42,254 $33,509 $57,817

Aged Pension $21,912 $21,912 $33,035 $33,035

Estimated capital required

$71,000 $650,000 $147,000 $852,000

Aged Pension comparison for homeowners March 2014

ASFA / Westpac Retirement Standard

Figures are updated each quarter at www.avsuper.com.au Assumptions: Retirement income generated to retiree age 90; Spouse is 4 years younger; Homeowner; Age Pension included; Standard MoneySmart assumptions - capital stable investment. – earning 6% paSources: www. asfa.asn.au and www.moneysmart.gov.au

Age PensionPresented by Carl Wilson

Rate using Income TestRate using

Income Test

Potential MaximumPotential Maximum

Rate using Asset TestRate using Asset Test

Lower Rate Applies

Lower Rate Applies

Age Pension rate paid

Couple

Homeowner $286,500 $1,134,000

Non-homeowner $433,000 $1,280,500

Asset test thresholds

Threshold* Cut-out point**

Single

Homeowner $202,000 $764,000

Non-homeowner $348,500 $910,500

*Thresholds are indexed bi-annually

**Pension reduces by $1.50 per fortnight for every $1,000 of assets above the threshold

Couple

$284.00 PFN $2,825.20 PFN

$7,384.00 PA $73,455.20 PA

Income Test thresholds

Full Pension $ No Pension* $

Single

$160.00 PFN $1,845.60 PFN

$4,160.00 PA $47,986.00 PA

* Pension reduces by 50c for every $1 of income above the Full Pension Threshold

Budget proposes freezing thresholds from 1 July 2017 to 30 June 2020

Example - Homeowner Couple

Item Asset Income

Home (on < 2Ha) Exempt -

Household/Personal $10,000 -

Motor Vehicles $18,000 -

Caravan $4,500 -

Holiday Shack $200,000 -

Bank Acct, Investments $140,000 $3,739 pa

Allocated Pension $650,000 $4,128.75 pa

Totals $822,500 $7,867.75 pa

Asset test rate = $455.35 pf combined

Income test rate = $1,257.10 pf combined

Pension Rate Indexation• Twice Yearly• 20 March & 20 September• 27.7% of Male Total Average

Weekly Earnings• Pensioner and Beneficiary Living

Cost Index

Pension Payments• Fortnightly in arrears

• Payday determined at commencement

• Change Payday to suit you

• Direct deposit to financial institution

• Centrepay• Direct deduction to registered

organisations (gas, electricity, etc.)

Assessment of Income

• Earnings from employment

• Gross amounts before tax and other deductions

• Includes salary sacrifice amounts

• Excludes 9.50% employer contribution to super

• Less the “Work Bonus” if applicable

Work Bonus

• For those over Age Pension age, who receive a pension

• Disregard the first $250 per fortnight of earnings from employment

Alan earns $1,300 pf. Of this $250 pf is disregarded.

Only $1050 pf is assessed under the Age Pension income test

Work Bonus Balance• If you do not work, the work Bonus

amount is saved• This accumulates as the Work Bonus

Balance• Balance can reach a maximum of

$6,500Peter’s Work Bonus Balance is $500. He

returns to work & is paid $1000 in a fortnight

The $1000 income is reduced by $250 for the Work Bonus, and $500 Work Bonus Balance

Thus, $250 of the $1000 is assessed

Work Bonus - Couples

• Each person can have a Work Bonus

• But each must be over Age Pension age and receiving a pension

• Jane and Dan earn $600 pf each.

• They both receive a Work Bonus so only $350 each is assessed under the pension income test

Work Bonus

• Fortnightly assessment– Fortnightly reporting for some

• Applies to income from salary and wages only

• Bev can take advantage of the Work Bonus if her private company pays her a salary, but not if she only receives distributions of company profits

Income Streams -Example• Ted bought an account based

income stream at 65 with his $500,000 super

• He plans to take $28,000 pa

• Deduction Amount* ($500,000 / 18.54 years) $26,969 pa

• Assessed income $1,031 pa

* rationale – purchase capital is spread over term/lifetime (proposed legislation)

Assessment of Income

• Earnings from employment

• Income stream products– Annuities, Allocated Pensions, Term

Allocated Pensions, Account Based Pensions

– Gross Income – Deduction amount– Beware – withdrawals from these

products will affect the Deduction Amount – discuss with FIS or your Financial Planner

Assessment of Income• Earnings from employment• Income stream products• Super pensions• Farm or business income• Deemed income on financial assets• rental income

DeemingAll financial investments are aggregated

(cash, shares, bank accounts, investments, loans)

•Single– First $48,000 is assessed at 2%– Remainder assessed at 3.5%

•Couples– First $79,600 combined is assessed at 2%– Remainder is assessed at 3.5%

…irrespective of actual income received

Deeming –Example

Bruce is single and has the following

Bank Account $4,473 @ 1% $44 pa

Term Deposit $72,000 @ 4.5% $3,240 pa

Shares $28,000 $1,120 pa

Total $104,473 $4,404 pa($169 pf)

Bruce’s deemed income

First $46,600 @ 2% $932 pa

Remaining $57,873 @ 3.5% $2,026 pa

Total $104,473 $2,958 pa($114 pf)

Deeming Options

• Deeming accounts– Offered by most financial institutions– Interest rate reflects deeming rates– Fees, rates and conditions vary –shop

around– Are there better options for your needs /

timeframe?• Internet accounts• Cash management trusts• Term deposits• Managed funds

Asset Test

• Assets = the things you own– Different thresholds for

• Homeowners• Non homeowners

– Assets above the threshold reduce pension at $1.50 pf per $1,000

Assets include…

• Motor vehicles, boats, caravans etc.

• Household contents and personal effects

• Bank accounts, investments, loans

• Real estate (net value)

• Farms, business (net value)

• Antiques, collectables

• Gifting

Valuing assets

• Net market value• Motor vehicles, household contents etc

– Your estimate

• Real estate– Current market value– Australian valuation office

• Financial investments– Current value or account balance

Assets DO NOT include…

• Principal home and surrounding land on same title– Up to 2 ha under private land test– No limit under extended land use test

Assets do not include…• Accommodation bond paid for

aged care

• Funeral bonds, prepaid funerals

• Special disability trusts

• Super/rollover investments– Up until Age Pension age– Ministerial exemption– Peter is 65 and his wife Jill is 58;

Super in Jill’s name is not included when assessing Peter’s Age Pension

Assets do not include…• Complying income

streams bought before 20 Sept 2007– 50% or 100%

exemption (based on purchase date)

– Must meet specific criteria

Assessment of GiftsGifting and Deprivation – up to:

– Single $10,000 per financial year*– Couple $10,000 combined per financial

year*– $30,000 in any 5 year rolling period– Excess over limits

• Assessed as an asset for 5 years• Added to financial investments, deemed 5 yrs

A $10,000 gift could increase your pension by up to $390 pa but lose interest )

* includes 5 years prior to Pension claim

• Pensioner Concession Card– All pensioner recipients– Primary entitlements

• Health / Pharmaceutical• Transport & Household Bills

– Informal Entitlements• Club memberships• Sports & Entertainment

• Other concession cards• Commonwealth Seniors Health Card• Health care card • Low income health care card• DVA concessions & State Seniors cards

Investment Update

Investing with AvSuper

• Seven Investment Options

• Growth default option(a balanced option of moderate to high risk)

• You have the freedom to make an investment choice!

Investment performance*

Investment optionsPerformance to 30 September 2014

1 year 3 year^ 5 year^ 10 year^

Growth (MySuper) Option 9.0% 12.6% 7.7% 6.0%

Cash 3.6% 3.5% 3.7% 4.3%

Conservative Growth 6.4% 7.4% - -

Stable Growth 8.6% 9.7% 7.1% 5.9%

High Growth 10.8% 16.3% 9.0% 6.6%

Australian Shares 7.6% 16.4% - -

International Shares 13.1% 16.8% - -

* Past performance is not a reliable indication of future performance^ Compound average returns

How much do I need tosave for

retirement?

Single Couple

Lifestyle Modest Comfortable Modest Comfortable

Income PW $446 $810 $642 $1,108

Income PA $23,283 $42,254 $33,509 $57,817

Aged Pension $21,912 $21,912 $33,035 $33,035

Estimated capital required

$71,000 $650,000 $147,000 $852,000

Aged Pension comparison for homeowners March 2014

ASFA / Westpac Retirement Standard

Figures are updated each quarter at www.avsuper.com.au Assumptions: Retirement income generated to retiree age 90; Spouse is 4 years younger; Homeowner; Age Pension included; Standard MoneySmart assumptions - capital stable investment. – earning 6% paSources: www. asfa.asn.au and www.moneysmart.gov.au

QUESTIONS?

How can I increase myretirement capital?

Investing in super

Several ways to contribute to super:

• voluntary after-tax contributions• government co-contribution• salary sacrifice• spouse contributions

Retirement planning strategies

Your strategy can be tailored to your particular situation

•Case studies

•Increasing your retirement benefit while still working

•Maintaining your income when you reduce working hours

Transition to retirement

Allows access your super to start an income stream while still working•Cut back working hours without reducing your income, or maintain current working hours•Can start from age 55 to 64•No lump sum payments until condition of release is met•Limited to 10% of account balance at start of each financial year

Transition to retirement

• Funds can be withdrawn if retired

• Tax free to those aged 60+

• No tax on investment earnings

• Remaining balance can be paid to dependants or legal personal representative on death

• 100% counted towards Asset Test

Employer 9.5% + salary sacrifice

One-off rollover

Must draw4% Min pa10% Max pa

SalaryTake

home pay

AvSupersuper

account

AvSuperIncome Stream

Open a AvSuper Income Stream account

Case study: Sam• Sam is age 58• has accumulated $240,000 in AvSuper• current gross salary is $100,000 • wants to increase super while maintaining

current after-tax income• Balance at age 65 is currently projected to

be $375,064

What strategies may work for Sam? He could consider a Transition to Retirement

** Source: AvSuper Calculator. Investment performance can be both positive and negative. Assumptions: investment earnings of 7%, inflation of 3%

Without TTR income stream

Using TTRincome stream before age 60

Using TTRincome stream

after age 60

Salary

SG contributions

Salary Sacrifice

full time $100,000

$12,750

$0

$100,000

$12,750

$12,250

$100,000

$12,750

$22,250

Income stream Nil $12,000 $15,000*

Tax paid(inc Medicare levy and offsets) $26,700

$26,350

(tax offset) - $1,800

= $24,550

$17,981

After-tax income $73,300 $75,199 $74,769

*Net into super

$10,625 $21,250 $29,750

Case study results: Sam

* Tax free after age 60Assumes 15% contributions taxIncludes Low Income Tax Offset and Mature Age Worker Tax Offset

Impact on SamWhat impact could this have on Sam’s retirement benefit?

Estimated Retirement benefit at age 65:

•No personal contributions = $375,064

•Using TTR income stream = $422,690

Without any reduction in Sam’s pre-retirement after-tax income!

Structuring Income Streams in Retirement

One of the most important issues of retirement is ensuring you have a well-structured and sustainable retirement income strategy. A strategy that is proving popular is to take an approach that segments your income into tiers that relate to specific retirement time periods.

•The first and most important investment tier is Cash. This tier should hold enough money to cover income payments for three to five years depending on your investment risk profile.

•The second tier should include a conservative or stable investment option. These options hold a large percentage of fixed interest investments and hold 50 – 70% in defensive assets which reduces the risk in these options when compared to more aggressive investment options.

•The third tier in this portfolio consists of investments that are traditionally more risky and volatile such as AvSuper's High Growth, Australian Shares, Growth and International Shares options.

Structuring Income Streams in Retirement

Final Food for Thought

AvSuper Member Advice Solution

personal advice on issues such as:•contributing extra to your super•co-contributions•salary sacrifice•insurance cover•investment options•Retirement planning/TTR

No commissions or ongoing advice fees are payable

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www.avsuper.com.au 1800 805 088