3 ways to lift your income in retirement
Retirement | 10/07/2019 |
6 min read
Aussies are living 10 years longer than we did 50 years ago. We’re staying fit and active well into retirement, and our lifestyle expectations have changed accordingly. Whether it’s overseas travel, learning a new skill or spoiling the grandkids, there’s been a huge shift in how we approach life in later years.
A number of government changes took effect on July 1 2019 to help retirees boost their income. Aimed primarily at people who derive some of their retirement income from the Age Pension, the rules can help fund a more active and independent life.
Pension Work Bonus
If you receive the age pension or a Veterans Affairs pension, you can now earn up to $300 a fortnight (up from $250) without impacting on your Centrelink payment. This can be as high as $474 a fortnight per person when you factor in the income test threshold.
The work bonus applies whether you are an employee or self-employed. And if you don’t earn the full $300 per fortnight you can accumulate and carry over the unused amounts (up to $7,800) for future income.
For instance, if you haven’t worked for a year, you accumulate $7,800 of unused work bonus. If you then earn $4,000 for contract work over a six-week period, this won’t impact your Centrelink payments (and will leave you with another $3800 in income for the year before your payments are impacted).
Pension Loans Scheme
Changes to the Pensions Loans Scheme mean that more people can tap into the equity in their home.
You can now borrow up to 150% (previously 100%) of your maximum fortnightly pension rate to provide you with a better standard of living in retirement. The payments are made to you each fortnight, not as a lump sum. The amount borrowed is secured by property you own in Australia.
The loan can be repaid at any time you choose, although it is recovered when you sell the property or from a deceased estate. Retirees are currently charged a compounding variable interest rate of 5.25 per cent a year on the loan.
In other words, it’s basically a reverse mortgage facilitated by the government. Of course, such a loan will reduce your home equity, but it will give you added cash flow in the meantime.
New means testing of annuities
Changes have also been made to the treatment of pooled lifetime retirement income streams, such as lifetime pensions or lifetime annuities.
An annuity is a product where your money is pooled with other investors and a set amount is paid to you each year, usually for the rest of your life.
Under the new rules, Centrelink will treat a fixed 60% of all annuity payments as income. And for the assets test, it will assess 60% of the nominal purchase price for the period until you are age 84 (and 30% after that).
These changes do not apply to account-based pensions or to annuities purchased before 1 July 2019. And while the 60 per cent ruling may improve your circumstances, it won’t in all cases.
These three changes are all aimed at giving you additional sources of stable income in retirement. If you would like to know how they may impact you please book an appointment with an Equip Financial Planner.
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