It’s no wonder retirees have a lot on their minds. 2016 ended with the finalisation of the biggest reforms to super in a decade and impending changes to age pension thresholds.
Whether it’s pension changes that may affect your cash flow or a need to restructure your self managed super fund (SMSF) under the new rules, the holiday period is an ideal time to take stock of your finances, and we can help.
Make the aged pension work harder for you
This year many people could lose all or part of their age pension due to a drop in the assets test threshold. For most of us, the prospect of managing with less income is daunting, particularly if you are on a fixed income with few options to cut expenditure.
So calculate if you’re going to lose money and if so, how much. The age pension will be cut off entirely for couples with more than $816,000 of assets and singles with more than $542,500. A bigger group will suffer cuts to their fortnightly payments (couples with assets between $453,500- $816,000 and singles between $291,000-$542,500) – the worst affected couples will lose as much as $528 per fortnight. The Department of Human Services are sending out notifications of amounts payable under the new regime but you can also calculate your new fortnightly payment using the Age Pension Assets Test Estimator.
Also check your cash reserves (in your personal name and super) to ensure your reserve is high enough to compensate any loss of pension income. If you need to increase your cash balance, talk to your wealth advisor about investments that could be gradually sold. Your advisor should also help you plan for the longer term with a fresh look at diversifying your investments – but be cautious about significant changes such as selling an investment property in a hurry, as the forced sale of assets can be quite stressful and you could forgo some value.
Get savvier with your super in this financial year
There is now limited time available to review your current strategies and maximise your retirement position before the new super rules come into effect on 1 July 2017. To take advantage of this six month window, we suggest you investigate the following considerations.
Firstly, review your eligibility to make non-concessional contributions to super before 30 June 2017 and consider if it’s possible to bring forward future contributions into this current financial year. And it’s important not to wait – because after 1 July 2017 if your total super balances reach $1.6 million you won’t be able to take advantage. Secondly, if you’re a retiree affected by the $1.6 million pension transfer limit, there are several decisions to work through to help with managing the excess amount; from re-distributing some funds to your spouse (if they’re eligible), to rolling excess amounts back to accumulation. Understanding Capital Gains Tax relief provisions will also be very important for SMSF trustees.
Whatever your position, it’s important to review how your investment strategy aligns with the changes
Consider how you want your retirement assets to look next year and in two, five and 10 years’ time. This is crucial to helping you understand how the new rules and thresholds may impact your retirement goals. It can also assist you with setting up your investment portfolio to support your planning.
The importance of maintaining cash within most portfolios is expected to continue throughout 2017 because of ongoing global instability and to cover cash flow changes from new age pension and super rules. Despite the temptation to try and generate income through purchasing riskier assets, holding cash can provide certainty in times of change. For more assertive investors, good cash reserves can also help fund buying opportunities during market dips. For example, in 2016, the Australian share market fell sharply after the initial Brexit results despite having limited direct impact on many Australian companies, ultimately providing good buying opportunities for those with available cash.
It’s important to always look beyond the headlines and be thorough with your due diligence
If you’re overwhelmed about your super or how age pension changes could impact your retirement, Dixon Advisory’s family wealth team provide expert strategic planning advice for managing retirement income. Talking to a professional advisor can give you insights to keep your life savings working for you into and beyond 2017. Click here to book a free consultation.