If you’re expecting a letter from Centrelink telling you that your pension is about to change, then no doubt you’re worried about what’s next.
Before you start stressing about how you’ll make ends meet or rushing to sell your assets, there are some things you can do to prepare your finances.
With three months to go until the changes come into play, there’s no time like the present for you to get in and start planning.
Managing director of financial advisory with Dixon Advisory Nerida Cole has four key tips to help you prepare for the pension changes.
“The first thing for people to do is to do the sums and work out if you are going to lose money,” Coles says.
“If so, calculate how much will you lose and how it will affect your overall income.”
The next step is to review your budget and check if there are any savings you can make.
Cole advises that when reviewing your budget, you should check if there are any expenses you can cut back on or adjust.
“Unfortunately though for a lot of age pensioners, if they are cutting their budget they are often reducing their standard of living by cutting out something that can be quite a modest expense – such as going to the cinema or lunch with friends,” she says.
“Those sort of things can add a little bit of enjoyment and valuable social connections to people’s lives but unfortunately they’re the first thing most people have to cut from their budget.”
Your next move should be to check your cash reserves whether held in your personal name or superannuation.
“It’s going to be really important for people to make sure their cash reserve is high enough to make up for the loss of income from the pension,” Cole says.
“Because interest and earnings rates are so low, the amount that is lost from the fortnightly age pension will most likely need to be replaced by dipping into these cash reserves.”
The fourth tip Cole suggests is to think about the long-term.
It turns out, that while you may be losing your pension at the end of this year — in a few years time your assets may have reduced enough to see you qualify for the pension again.
“As you may need to draw down on your portfolio more quickly than previous years, the value of your assets may dip back under the maximum Centrelink limits in the not too distant future,” Cole said.
“With that in mind it might not be too long before you may end up qualifying for the pension again, although you’ll need to keep an eye on the Centrelink income test.”
“In the interim you should look at diversifying your investments to get as many bites of the apple as you can.”
If you’re struggling to work it all out on your own, there is some help at hand.
Cole suggests contacting your local Centrelink office who are running some basic seminars about the 1 January changes, do some sums yourself, or get some help from a financial professional.
“If you’ve got more complex circumstances or you need to re-jig your investments or super portfolio, you should seek financial advice, particularly if you expect you will lose a fair bit of your pension,” she says.
“An advisor can help you work out a cashflow plan and get your assets set up to provide you with much needed income.”
There is one thing however that experts are warning you against doing – and that is going out and selling off your assets in a hurry.
“At this point in time with less than three months until the changes kick in, if you’re thinking about making massive changes such as selling your investment property, you need to be careful in making any decisions,” Cole advises.
“The forced selling of assets can be quite stressful and you could forgo some of the value of your asset.”
What are the benefits of planning now for the changes to your pension?
Well, as Cole points out, it’ll be a lot more difficult to work out how you’ll get by if you wait until January.
“Looking into this new means you have time to go to a seminar, review your cash and carefully consider any changes before you make final decisions,” she says.
“This can reduce stress and anxiety and keep you in control of your finances.
“It could be quite unfortunate if you’re forced into a situation where you need to sell.”