Retirement planning can be overwhelming, especially when it comes to government entitlements and maximising your personal savings. One of the biggest areas of confusion we see at Insight Wealth Planning is the interaction between the Aged Pension and superannuation. Understanding how these two work together and how to utilise them effectively can make a significant difference in your financial well-being in retirement.
Effective budgeting is a critical first step in financial planning, helping you understand your financial situation and set realistic goals.
Superannuation planning is important because the choices you make can impact your financial security and investment returns for life. Creating and developing a comprehensive financial plan is essential to achieve long-term financial security in retirement.
Aged Pension
The Australian Age Pension is the main income support payment and a safety net for older Australians with limited assets or income. Funded by the Federal Government, it’s available to residents who meet the eligibility criteria:
- You must be an Australian resident for at least 10 years
- You must have reached Age Pension age (currently 67)
- You must pass both an income and assets test
If you have lived or worked overseas, you may be able to claim the Age Pension under an international social security agreement, which allows for pension claims based on bilateral agreements between Australia and other countries.
If you’re part of a couple who own your home, you may be eligible for a full age pension of up to $44,855 per year, if your combined assets (excluding the home) are below $470,000. Pension entitlements reduce gradually and cut off altogether when assets reach $1,045,500.
Income Affects Your Pension
Pensioners can still earn income from other sources, including employment and investments, and remain eligible for a full or part pension.
Under the income test, couples can earn:
- Up to $9,672 per year from investments and still get a full pension
- Up to $99,382 per year and still get a part pension
Services Australia uses a ‘deeming’ system to assess investment income, assuming you earn 0.25% on the first $103,800 and 2.25% on anything above that, regardless of your actual investment returns.
You’ll be assessed under both income and asset tests, but only the test that produces the lower pension entitlement will apply.
Work Bonus
If you’re still working past retirement age, the Work Bonus allows you to earn additional employment income — currently up to $11,800 annually — without affecting your pension. This means you can top up your pension without penalty, a great benefit for those who want to stay active or earn extra income in retirement.
Superannuation Fund: A Pension Top-Up
Superannuation is included in your asset and income assessments, but it serves a different purpose from the government pension. Super is your personal wealth, held in a personal superannuation account that you can manage to suit your needs. When used strategically, it can make a big difference to your lifestyle in retirement.
Once you reach preservation age (generally age 60), you can start drawing a superannuation income stream. These private pensions are:
- Tax-free on investment earnings and capital gains
- Tax-free in your hands once you’re over 60
- Flexible, you can draw as much or as little as you need (within limits)
Your superannuation balance remains invested, generating returns even as you draw an income.
For many retirees, this income acts as a crucial top-up to the age pension and can mean the difference between just getting by and living more comfortably.
Throughout your working life, contributions are paid into your superannuation fund by you and your employer, and these contributions grow your retirement savings.
Consolidate Your Super
Managing multiple super accounts can make it hard to keep track of your super balance and may result in paying unnecessary administration fees across different super funds. By consolidating your super accounts into one super fund, you can simplify your retirement savings, reduce overall fees and make it easier to monitor your financial situation as you approach retirement. However, before making any changes, consider your personal circumstances, including your existing super accounts and whether your current investment options meet your needs. Some funds may charge exit or transfer fees, and eligibility criteria may apply when consolidating accounts. To get started, you can use the Australian Taxation Office’s online services or contact your chosen super fund directly for assistance. Seeking financial advice can help you make the best decision for your circumstances; consulting qualified advisers or financial advisers ensures you receive tailored guidance.
Explore Your Super Options
Your super fund has various investment options, each designed to suit different financial goals, risk tolerances and personal circumstances, including your individual risk tolerance. Setting clear investment goals is essential when choosing super fund options to ensure your strategy aligns with your long-term needs. While it can be tempting to focus on past performance, remember it’s only one factor to consider when choosing an investment option. It’s equally important to look at the fees, tax implications and the overall investment strategy of each option. Most super funds have choices ranging from growth-focused investments like shares and property to more conservative options such as fixed income. If you’re unsure where to start, many funds have a default investment option that balances risk and return for the average super fund member. Taking an active role in selecting your investment options and seeking financial advice if needed can help you maximise the benefits of your super and increase your chances of achieving your retirement goals, with investing being a key strategy for building retirement wealth.
Smart Planning
There are also several strategies to boost your pension entitlement. Eligibility criteria apply to some of these strategies.
Some strategies require you to deal with complex financial obligations and rules.
Family Home Exemption
The family home is exempt from the asset test, so you can live in a high-value property and still get the full pension as long as your other assets are below the threshold.
Age-Gap Superannuation Strategies
If you have a younger partner who hasn’t reached Age Pension age, you can move assets into their super (in accumulation phase), which isn’t counted in the asset test. These are considered super contributions, and you may need to consider transferring funds from another fund when making these contributions. This can improve the older partner’s pension eligibility — effectively “sheltering” assets from assessment.
You can contribute:
- $120,000 per year as a non-concessional contribution
- Or up to $360,000 over three years using the bring-forward rule
- With some planning, a couple could shift up to $440,000 in a short period
Protecting Your Assets
Safeguarding your assets is a cornerstone of effective retirement planning. A well-structured financial plan should take into account your income, expenses, investments, and any outstanding debt to ensure your financial situation remains secure both now and in the future.
Working with a financial adviser can provide valuable guidance on strategies to protect your assets, such as diversifying your investments, managing risk, and creating a reliable income stream for retirement. By proactively planning and seeking expert advice, you can minimise potential risks, preserve your wealth, and enjoy greater peace of mind as you move through each stage of retirement.
Digital Skills for Retirement
In today’s world, digital technology plays a vital role in managing your finances and accessing important services. For older Australians, developing digital skills is essential for staying connected, keeping track of their financial situation, and making the most of online resources. The Be Connected program is a fantastic initiative that helps people aged 50 and over build confidence in using the internet and digital devices.
By improving your digital skills, you can more easily manage your super fund, access government services, and stay in touch with loved ones. Taking advantage of programs like Be Connected ensures you’re equipped to navigate the digital landscape, empowering you to manage your finances and access the support you need for a secure and enjoyable retirement.
Travel and Relocation
Travel and relocation are exciting possibilities in retirement, whether you’re planning to explore new destinations, visit family, or move to a location that better suits your lifestyle. However, it’s important to consider how these choices might affect your financial situation, including your income, expenses, and access to services.
Before making any decisions, review your financial plan and consult the Services Australia website for up-to-date information on how travel or moving may impact your Age Pension and other benefits. Services Australia provides clear guidance on the rules around overseas travel, temporary absences, and relocating within Australia. Speaking with a financial adviser can help you determine the best approach for your personal circumstances, ensuring your retirement planning remains on track and your financial goals are met. With careful planning, you can enjoy the freedom of travel and relocation while maintaining your financial security and access to essential services.
1 July Updates
Superannuation rules and regulations change regularly, and many changes take effect from 1 July each financial year. For example, the super guarantee (SG) rate—the amount employers must pay into eligible employees’ super funds—may increase and impact your super balance and future retirement savings. Stay informed about these changes as they can also impact your investment options and how your super fund operates. You can find the latest information on the ATO website or contact your super fund. By staying up to date, you can make informed decisions about your super, ensure you’re getting the right super pay from your employer and take advantage of new opportunities to grow your retirement savings. It’s important to act on regulatory changes throughout the year to optimise your tax situation and maximise the benefits of your superannuation.
Why You Need Professional Advice
These strategies can be powerful, but they’re also complex. That’s why you need to work with a qualified financial adviser who understands the rules and can tailor a complete financial plan to your individual circumstances, ensuring your strategy is comprehensive and suited to your needs.
At Insight Wealth Planning, we can help you understand your options and build a retirement plan that lets you get the most out of both your super and the age pension. Professional advice ensures you make informed financial decisions as you prepare to retire. Whether you’re just approaching retirement or already receiving benefits, it’s never too late to make your money work smarter for you.
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