Smart Retirement

There is of course a cutoff point for Super Amount that will also allow you to get a FULL Age Pension, so this post examines how that might be achieved using the case of a person (and we will look at difference between male/female) of 40 years in 1990.

First task is to see how Keating's Compulsory Employer Contribution could fund such Retirement, so we draw up a spreadsheet that starts with a $40,000 salary in 1990 and escalates it at 3% pa.

Then we use an average of 5% Employer Contribution, and finally apply an 8% Growth Rate year by year, extending into the Retirement stage.

So for that person (male/female Robin) we get about $225,000 in late 2014 (so as to sneak in before Grandfathering ended on 1 Jan 2015).  As you see all the figures were conservative so the total might be more like $300,000, but $225,000 is enough, to start to eat into the Age Pension especially as we give Robin $25,000 in other assets eg a car etc, and say he/she is a homeowner.

So that gets rid of the "Accumulation Stage" and we are at Square One of off to see Centrelink and to see what sort of "LIFESTYLE OPTIONS" one has with this small amount of Super BUT all of it from Robin's employer.

Now read on:

Unfortunately (as Murray Report tells us) "94% of Retirees convert their Super into an Account Based Pension, and the majority use the Minimum DrawDown".  So that is what we will do for Robin.

Alas, even at our conservative Growth figure of 8% pa the Capital of the ABP continues to grow and even as the legislated Minimum Drawdown starts to increase over the years, at the end of 20 years the balance is 150%, and remember that Robin started at a point of getting over 90% of the Maximun Age Pension in Year #1, but over 20 years that slips to 79.32%, a total loss of $95,894 over 20 years.

The news is worse with the 2015 Budget changes to Asset Testing and the loss then escalates to $136,584.

So not only is that a huge loss of income but remember it was CAUSED by taking the Minimum DrawDown, so we have the double whammy effect as shown by the Combined Income Stream.

So the Total Income Stream starts at about $31,000 pa in Year #1 and barely makes $38,000 by age 85, just 49% more than for the Full Age Pension alone, BUT this IS what the majority of people do.  The Total over 20 years is $688,768

So let's leave that dumbness behind and get smart.  We ask the LOPS to tell us how much DrawDown to totally exhaust the ABP in 20 years (ie 2 years past Robin's Use-By-Date as a bloke) and it tells us that $22,868 pa is that amount.

We put that amount into the LOPS and all changes for Robin in 2015 (we will look at Grandfather in a moment).  He now gets 97.57% of the Full Age Pension, averaged over 20 years.  That is just $11,339 short of 100% Full Pension for 20 years.

You say yes, but what of the effect of the Hockey amendments 2017?  Well, it is just $91 over 20 years BECAUSE this plan is depleting the capital AWAY from the Hockey jaws.

And for Total Income Stream this profile is looking way better:

We start at about $42,875 pa (equivalent to a taxable income of $50,968) and end up with a steady INCREASE at about $45,000 at 85.  The Total Income is now $930,733 over 20 years, a whopping $242,000 better than the "plan" (NOT) of the self named "financial adviser".

Robin's Total Income Stream over 20 years is now slightly over DOUBLE the Maximum Age pension rate, and all he needed to do was BE in the workforce from 1990 to 2015.  He didn't need to put a cent into Super.  All of that thanks to the long term vision of Paul Keating which should eventually see the end of the Age Pension as a govt concern.

In conclusion, IF you see yourself being able to live in the "lifestyle" you want on a Retirement Income of DOUBLE the Age Pension, then this article says you can do that purely by working 25 years with your employer's Super Contribution ONLY.

Or if you want a better lifestyle you can start to add your own Super to this scenario, but of course the Age Pension will decline, and if you want to know just how much please contact us for an assessment report.

Here are the graphs in more detail for the second Scenario above.

The Three Card Trick - Grandfather, Murray and Hockey

Amid the normal doom and gloom media hype that "we are living too long" the government's plan to REDUCE the Age Pension Bill now becomes perfectly clear.

On 1 Jan 2015 Grandfathering struck the First blow, threatening Pensioners all that doom and gloom if they deserted him, saving some $10 billion pa if the pensioners BELIEVED the hype.

Then the Murray Report did the normal "blame it on the Pensioners" as the Second blow, explaining that 84% of Australians don't give a toss about Retirement Planning, and leave it to "financial advisors" and Super Fund trustees (who Murray described as somewhat lacking).

Then in May 2015 Hockey announced the Third blow via a new "retraction regime" for Asset Testing, said to save less than a billion pa but in fact saving about $5 billion pa.

To explain how smoothly this worked we simply need to update my recent post.  In this recent post I examined the example case provided in the Murray Report, and you can read it here.

The bottom line says Justin has been convinced during his working life that he needs $400,000 in Super as a bare minimum at 65, but AT 65 that he not USE it for his own benefit but simply Drawdown the MINIMUM amount.  A new idea of the CIPR is touted but that is purely pie-in-the-sky nonsense to cover-up the above seting-up of Justin to rob him of Age Pension.

Our analysis using a SENSIBLE Drawdown gave him DOUBLE the income over 20 years, including $206,000 increase in Age Pension, plus about $40,000 decrease in Fund Fees

Also our information that Justin would be $72,163 WORSE off if he took notice of Big Super to stay with Grandfather allowed him to avoid that trap.

So 5 months down the line since the Grandfather tricks, Hockey has announced the 2017 changes to Asset Testing, so we have factored all of that into the LOPS and can give you an update on Justin.

Had he stayed with the Govt inducement to NOT use his hard earned super, his Age Pension would go from $163,337 over 20 years, down to $32,187, ie a DECREASE of some $130,000.

But if he followed our advice to enjoy retirement he would go from $369,236 to $322,843, a lesser decrease of some $46,000, so he would be some $290,000 better off than had he meekly listened to his "Financial Adviser".

Here is the comparison shown graphically:

The top image shows the effect of being convinced by BigSuper that "you are SAFE with Grandfathering" but alas "the sting is in the tail" and we see the Green Income Triangles eat into the Age Pension to give just 63.12% of the Maximum over 20 years.

The middle image shows that by ESCAPING Grandfathering Justin gets 79.96% of the Maximum.

But that is short lived and from 2017 the Budget 2015 New Rules say even with escaping Grandpa Justin now has the Age Pension reduced to 69.92%, which is not quite as bad as for Grandfathering at 63.12%.

So finally the Double-Whammy is BOTH Grandfather and 2017 New Rules and here is the image.

The Age Pension is now reduced to just 55.69%, some $122,000 reduction.

Notice how skillfully the Govt has combined the New Rules with Grandfather, ie New Rules hit up front from 65 to 75 while Grandfather comes in from 75 to 85.  So remember you can't avoid the New Rules but Grandfather is optional.

Well in fact you CAN avoid the New Rules to some extent if you go easy on accumulating Super during your working life (maybe just take the employer contribution?) and so the Govt is covering that in conjunction with BigSuper, especially SunSuper with extensive advertising and the Pronking of "The R Word".

Budget 2015 Update

The budget of May 2015 has included some substantial changes to the Asset Testing for Age Pensions, to commence in 2017.

We have therefore updated our LOPS to allow us to give you a very accurate figure on just what the changes might mean to you over 20 years, and for the first case off the ranks today the news was a $105,000 DECREASE in Age Pension.

So to get a Report on your own case simply fill in the Form