Year: 2023

The time has come. You’ve worked hard over the years contributing to your superannuation to build up your retirement savings.

Now you need to think about the best way to convert your savings into an income stream that replaces your regular pay cheque.

Here are six ways you could generate a steady and reliable source of income in retirement:

1. An account-based pension allows you to access some of your super savings as an income stream while investing the remaining balance. You can choose the amount and frequency of pension payments to meet your financial needs in retirement. It’s important to consider factors such as investment options, fees and tax when selecting a provider.
2. The Australian Government provides the age pension to eligible individuals who have reached the qualifying age and meet income and asset tests. The age pension offers a regular income stream to supplement your retirement savings. It’s crucial to understand the eligibility criteria and work with a financial adviser to maximise your entitlements and enjoy a seamless transition into receiving the age pension.
3. Investing in dividend-paying stocks or managed funds can be a valuable source of income during retirement. Dividends are regular payments made by companies to shareholders, providing a potential income stream. Seek professional advice to identify companies with a history of consistent dividends, while considering the level of risk that aligns with your financial goals.
4. Investing in rental properties can generate a steady income stream for retirees. Australia’s property market has historically shown growth, making it an attractive option for long-term investment. But it’s essential to thoroughly research the market and consider the pros and cons of using property to fund retirement.
5. Exploring part-time employment or leveraging your expertise through consulting can offer an additional income stream during retirement. Continuing to work not only provides financial benefits but also keeps you engaged and socially connected. Identify opportunities that align with your skills and interests, allowing you to strike a balance between work and leisure.
6. Annuities provide an income for life or a specified period, offering protection against market fluctuations. Talk to a financial adviser to determine the most suitable type of annuity that aligns with your income goals and risk tolerance.

We can guide you through the complexities of retirement planning and help you generate an income stream to enjoy a financially rewarding and worry-free retirement.

Current as at Jul 2023

Knowing how much money you might need, how long it will last can be tricky.

Working out how much is enough for retirement depends on many factors, such as your lifestyle, plans for the future, and the number of years you’ll spend retired. Additionally, estimating how much you’ll have when you plan to retire depends on factors such as your current salary, super balance and assets. With so many factors, it’s easy to see why you might need a retirement calculator to get an idea of your retirement savings needs.

By using retirement calculators you can get an indication of whether there’s a shortfall between how much you are estimated to have and how much you’ll need in retirement, and put a plan in place to address the situation.

How much is enough for retirement?

The Association of Superannuation Funds of Australia (ASFA) estimates that Australians aged around 65 who own their own home and are in relatively good health, will need the following amount of money each week and year in retirementⁱ:

Couple		Single
Comfortable Lifestyle	Modest Lifestyle	Comfortable Lifestyle	Modest Lifestyle
$1,350.23	$877.55	$957.94	$608.91

A modest lifestyle is considered better than living on the age pension, while a comfortable lifestyle means someone can afford a good standard of living, be involved in a broad range of leisure and recreational activities and travel domestically and occasionally internationallyⁱⁱ.

For Australians on above-average incomes, another rule of thumb to estimate how much money you’ll need in retirement is to assume you will require 67% (two-thirds) of your pre-retirement income to maintain the same standard of livingⁱⁱⁱ.

What are your retirement lifestyle expectations?

Ultimately, how much money you’ll need for your own retirement is very personal, and will depend on your own situation, wants, needs and lifestyle expectations. It may help to factor in your day-to-day spending habits, your recreational activities and hobbies and whether you’ll be entering retirement debt-free.

How long will you work for?

The age at which you retire can have a significant impact on how much money you have and how much money you need in retirement. It can depend on factors such as your health, debts, super balance, age you can access your super, whether you have dependants, and your partner’s retirement plans (if you have one).

How long will you be retired?

Keep in mind that if you’re planning to retire at around age 65, it’s likely you’ll live for another 20 years or so. Men aged 65 can expect to live to 84.6 years, while women can expect to live to 87.3 years^iv.

How much money will you have in retirement?

The money you use to fund your life in retirement will likely come from a range of different sources including the following:

Superannuation

Knowing your super balance is a crucial part of planning for retirement, as it’s likely to form a substantial part of your retirement savings.

Age pension

Depending on your circumstances and assets, you could be eligible for a full or part age pension, or alternatively, may not be eligible for government assistance at all.

Investments, savings and inheritance

You may be planning to downsize your house, sell shares or an investment property, or use money you’ve saved in a savings account or term deposit to contribute to your retirement. Or perhaps an inheritance or the proceeds from your family’s estate may help you out in your later years.

How retirement calculators can help

Meet Mac. He’s 51, married and planning to retire at age 65.

To work out how much Mac might need in retirement, he uses a retirement calculator. Mac is hoping for a comfortable standard of living in retirement, and the calculator estimates this will cost him $1,154.49 a week – or $60,033 a year. He’s also planning on buying a new car and doing some travelling once retired, and thinks he’ll need $40,000 for these one-off expenses. Based on a life expectancy of 81 years, the retirement needs calculator estimates he’ll need a total of $993,473 to fund his retirement.

So how much might he have in retirement, and how long is his money likely to last, based on his current and expected financial situation?

Mac currently has $172,000 in superannuation invested in a balanced investment option, an annual pre-tax salary of $82,000, shares worth $20,000, and the couple owns their family home. Based on this information, the retirement simulator calculates he’ll retire with savings of $294,944. Based on his expected expenditure in retirement outlined above, the retirement simulator estimates his money will only last until age 71, leaving him with a funding shortfall of 10 years in retirement.

While this news may seem scary, it’s not an uncommon situation. Luckily, finding out about the possible shortfall now means there may still be ways to boost his savings before retirement.

What do you do if you won’t have enough to retire?

If, like Mac, you’re facing a shortfall in retirement, there are several things you can do to get your retirement on track. You could consider boosting your super through additional contributions, delaying your retirement, adjusting your retirement lifestyle expectations, or selling other assets.

Simply by having an idea of your current and projected retirement savings, you could work to improve the situation. The earlier you start, the easier it may be for you to reach your retirement goals.

Contact us to see how we can help.

i, ii https://www.superannuation.asn.au/resources/retirement-standard
iii https://moneysmart.gov.au/grow-your-super/how-much-super-you-need
iv https://www.aihw.gov.au/reports/life-expectancy-death/deaths-in-australia/contents/life-expectancy

Generally, you can, but there may be other things to consider.

When you access your super at retirement, depending on your age and personal circumstances, your super fund may ask you to sign a declaration stating you intend to never return to work again. However, there could be compelling reasons as to why you might go back in the future.

Figures from the Australian Bureau of Statistics reveal financial necessity and boredom are the most common factors prompting retirees back into full or part-time employmentⁱ. Whatever your motivations might be, if it’s something you’re considering, there are things you should be aware of.

What is your situation?

I reached my preservation age and declared retirement

If you reached your preservation age (which will be between 55 and 60, depending on when you were born) and declared you’d permanently retired, this would typically have given you unlimited access to your super.

Your intention to retire must have been genuine at the time, which is why your super fund may have asked you to sign a declaration stating your intent.

Depending on your circumstances, you also may be required to prove your intention to retire was genuine to the Australian Taxation Office.

I stopped an employment arrangement after I turned 60

From age 60, you can stop an employment arrangement and don’t have to make any declaration about your retirement or future employment intentions, while gaining full access to your super.

If you’re in this situation, as there was no requirement for you to declare your retirement permanently, you can return to work without any issues.

I’m aged 65 or older

When you turn 65, you don’t have to be retired or satisfy any special conditions to get unlimited access to your super savings, so regardless of whether you’re accessing super or not, you can return to work if you choose to.

What happens to your super if you return to work?

Regardless of which group (above) you fall into, you may have taken your super as a lump sum, income stream, or potentially even a bit of both.

If you chose to withdraw a regular income stream from your super savings and are wondering whether you can continue to access these periodic payments, the answer is yes you can – and that’s irrespective of whether you return to full or part-time work.

What are the rules around future super contributions?

Unless you plan on being self-employed and paying your own super, your employer is required to make super contributions to a fund on your behalf at the rate of 10.5% of your earnings (increasing to 11% from 1 July 2023).

This means you can continue to build your retirement savings via compulsory contributions paid by your employer and/or voluntary contributions you make yourself.

Note, once you reach age 75, you’re generally ineligible to make voluntary contributions (unless they’re downsizer contributions), while compulsory contributions paid by an employer under the super guarantee (if you’re an employee) can still be paid no matter how old you are.

Could returning to work affect your age pension?

If you’re receiving a full or part age pension from the Government, you’d be aware that Centrelink applies an income test and an assets test to determine how much you get paid.

Your super, as well as any new employment income will be considered as part of this assessment, so make sure you’re aware of whether earnings from returning to work could impact your age pension entitlements.

If you’re eligible, the Work Bonus scheme reduces the amount of employment income, or eligible self-employment income, which Centrelink applies to your rate of age pension entitlement under the income test.

Where can you go if you need a bit of help?

For information and tips around re-entering the workforce, check out the Department of Education, Skills and Employment website, which includes a Mature Age Hub, as well as details around the government’s Jobactive initiative and New Business Assistance for those looking to become self-employed.

There are also websites like Older Workers and Seeking Seniors, which focus specifically on mature-age candidates.

If you have further questions on how a return to work could impact you, speak to us today.

©AWM Services Pty Ltd. First published Jul 2022
i ABS – Retirement and Retirement Intentions, Australia

Term deposits offer certainty and savings accounts offer flexibility. Here are some other common features and benefits of each.

Putting your money into a savings account, or a term deposit, are two common methods of saving. Working out whether either of these options are right for you depends on your personal and financial circumstances, as well as your savings goals.

To look at this simply, a separate savings account where your money is readily accessible might be useful for a short-term goal. A term deposit, where your money may be tied up for a longer period of time in return for generally higher interest, could be a more suitable option for a longer-term goal.

Term deposits

Term deposits work by locking your money away for a certain timeframe (or ‘term’) in exchange for a fixed interest rate return at the end of that term. A general rule of thumb is the longer the term, the higher the interest rate. Terms vary, but usually range from as short as one month to as long as five years.

They’re worth considering if you’re looking to get an exact amount by a certain date, and don’t need to access the money before the agreed term ends.

Pros

• There is more certainty involved with the return on term deposits than most savings accounts as the interest rate is guaranteed.
• Usually, these accounts come with no set-up fee. They often offer a higher rate of return to compensate for your money being out of reach for the entire duration of your term.
• You don’t need to worry about fluctuations in the Reserve Bank of Australia’s (RBA) cash rate.
• If interest rates fall during that time, you’re likely to do relatively well with a locked-in rate.

Cons

• If the cash rate rises, you won’t be able to obtain the benefit of that increase for your term deposit.
• Your money is locked away for the full term.
• You’ll have to give notice to access it early, usually around 31 days.
• You’ll have to pay a penalty fee or earn less interest if you take your money out before the end of the term.
• A minimum initial deposit is required, which can vary widely.
• There’s no option to top up funds once you’ve opened a term deposit.

Interest rates on term deposits

With a term deposit, the length of the term has a corresponding interest rate. You can choose the term, or the length of time you want and the amount you want to deposit based on your needs.

When should I open a term deposit?

Term deposits can be useful when you’re looking for certainty about the rate of interest your money will earn. So, if your goal is to buy a car but you want to wait until the end of the next financial year to grab a bargain, you might plan for a term deposit that matures around then.

Savings accounts

Savings accounts are more flexible than term deposits. A savings account can be useful when you want to put your money away and have it earn some interest with the peace of mind that you can also access your funds as and when you need to.

Pros

• You can deposit or withdraw money at any time.
• You may be able to link to an everyday transaction account.
• Interest rates may rise, giving you a greater return on your initial deposit.

Cons

• Interest rates may fall, giving you less than you expected at the outset.
• If you withdraw funds you may lose interest for that month, or whatever length of time applies to your account.
• You may be required to make minimum monthly deposits to earn bonus interest rates.
• You may need to maintain a certain balance to avoid any potential fees or loss of interest rate benefits.
• Some savings accounts may limit access to money to encourage you to save, through no debit card or ATM access

Interest rates on savings accounts

Standard savings accounts usually offer low fees and immediate access to your money, but you may get a lower interest rate compared to a term deposit.

Interest rates are quoted per annum, applied as a percentage to the money you have in your savings account on a daily basis, and credited monthly.

As the name suggests, high-interest savings accounts typically have higher interest rates, but there may be penalties for withdrawing your money before a set period of time has passed, or if you don’t meet the required number of debit card purchases or ongoing minimum deposit requirements.

What to consider before opening a savings account?

Things to consider:

• fees charged
• interest rates
• how accessible your money is
• whether you can set up an automatic direct debit, and
• whether there’s a minimum amount you need to deposit each month.

There’s a variety of savings accounts in the market so use this checklist to help find the right savings account for your situation.

How fees compare

Term deposits usually come with no set-up fee. However, if you need to withdraw your money before the maturity date, you’ll likely have to give notice in advance of your withdrawal and pay a fee or earn less interest.

Some savings accounts attract set-up fees and may also include anything from monthly account keeping fees to withdrawal fees.

So, when it comes to comparing accounts, make sure you’re across any potential fees or charges your provider may apply to your account.

©AWM Services Pty Ltd. First published May 2022

Sidestep the shock of unexpected bills by smoothing out payments and making regular, automated instalments that can be planned well in advance.

Ever experience that sinking feeling when you’ve opened a bill that you can’t possibly afford to pay? The shock of receiving a big bill – or worse, a number of them arriving at the same time – can be extremely stressful. Thankfully, by setting up bill-smoothing payments you may avoid these bombshells.

What is bill smoothing?

The goal of bill smoothing is to make budgeting easier by setting up regular, automated payment plans for businesses you normally get bills from, like electricity, gas, water and telecommunications companies. This way, you’re not forced to pay the whole, unknown amount in one go, and face fewer unexpected fluctuations.

How do I set up bill smoothing?

There are two simple ways:

1. Have your utility provider set it up for you

If you have trouble paying your bills, you may be able to implement a formal bill-smoothing plan by talking to your utility providerⁱ and asking them to set it up for you. The provider will tally up your spending over the last year and divide it by 12 months to get a monthly average – you can organise weekly or fortnightly calculations if you prefer. You then organise automated direct debit payments of this amount from your everyday account.

In theory, you’re paying more when your usage is lowest, contributing to a nice surplus that can cover usage at its peak. If you end up contributing more money than your actual bill amount, you’ll be rewarded with a refund or credit. You can also press pause on payments and restart them when you’ve used up your credit. On the flipside, if the cost of your energy, gas or water usage is greater than expected, you may be left with a ‘settlement’ bill at the end of the year to cover additional costs.

2. Set it up yourself

Complete the bill-smoothing process yourself, working out your average weekly, fortnightly or monthly spend. It’s a good idea to add in a buffer, say 5–10%, to cover things like annual rate increases.

Once you’ve figured out the amount and frequency, pay that amount into a separate bank account you set up specifically for this reason. Then, you should have accumulated enough funds in this account to cover your bills.

You can do this with pretty much everything you spend money on, from your groceries to your rent, car registration, mobile phone and rates.

Why set up payment plans?

Because it’s a great feeling when you get a ‘bill’ that’s in credit. It can also mean reduced credit card payments, if you’ve been using them to cover bills in the past. And while you’re talking to your utility providers about payment plans, you can potentially save even more money by asking them about switching you over to a better plan.

Should I try bill-smoothing payments?

Bill-smoothing payments work well for a wide range of people including those with irregular incomes, people on tight budgets, and those who wish to add a layer of discipline around paying bills and managing their money.

A few more things to consider about bill smoothing

One potential downside of formal bill smoothing is you may miss out on bank interest that you would otherwise earn from having the money sit in your account, rather than in the account of the company you’re paying. Which is why doing it yourself, informally, is quite appealing. You can try paying money into a separate bank account, this way you’re earning interest while still contributing to a purse that’s set up specifically to cover your bills, and nothing but your bills.

Contact us today if you’d like to talk about your financial situation.

©AWM Services Pty Ltd.

i Origin Energy, Red Energy, AGL, Power Direct, Diamond Energy, Click Energy