John and Karen are a 66-year-old retired couple. They own their own home, having spent many years there, with lots of cherished memories with their loved ones. Working most of their lives, together they have been able to accumulate $600,000 in super. They’d originally planned to convert these super savings into account-based pensions via their super funds.
They also have $50,000 in the bank and their non-financial assets (including cars and contents) are valued at $40,000.
Guaranteed retirement income for life
As a couple, they’re currently entitled to a part Age Pension of $14,510.60 p.a. (based upon their level of assets). However, John and Karen’s adviser recommends a combination of income streams for their retirement, including a lifetime income stream (a lifetime annuity which benefits from the means testing changes from 1 July 2019, in this case).
Using a quarter of their retirement savings this way will provide guaranteed income for life on top of the Age Pension – no matter how long they live or how share markets perform. It’s an extra layer of income to ensure they can always cover some of their living costs.
An Age Pension boost for John and Karen
And because this lifetime income stream started after 1 July 2019, just 60% of the purchase price is initially counted as an asset under the social security assets test. This reduced their assessable assets – increasing their Age Pension in the first year.
For John and Karen, their combined Age Pension in the first-year jumped to $19,190.60 p.a. (an increase of $4,680*).
Whilst John and Karen are happy with this boost, their financial adviser informs them that things could change in the future as their assessable assets can change in value over time.
Important notes: Age Pension benefits described above will not apply to all individuals. Age Pension outcomes depend on an individual (or couple’s) personal circumstances and may change over time. While lifetime income streams may immediately benefit some Age Pension eligible retirees who are assessed under the assets test, in later years, if assessed under the income test, any ongoing Age Pension benefits may be reduced. Consult your financial adviser about potential impacts on your personal circumstances and whether a lifetime income stream is right for you.
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