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How much super do I need to be comfortable?

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I am in my 50s and I feel like my super is not enough to give me a decent life in retirement. How much do you think I need to be comfortable? And what are the tests that give you access to the government pension to boost what I get from my super pension?

The age pension is not accessible until age 65 for men and women and by 1 July 2017, the age will gradually go up to 67. Effective from 1 July 2011, the age pension payment rates per fortnight for singles is $670.90 and $505.70 each for couples.

There’s also an assets test worked out for singles and couples. If the total value of assets is under $186,750 for a single homeowner or $265,000 for a couple with a home, a full pension is paid. For non-home owners, the critical cut-off is $321,750 for a single and $400,000 for a couple.

Above these amounts but below a maximum cut-off or threshold, part-pensions are paid. For a single homeowner, the maximum is $673,000 and for a couple it is $998,000. As for the non-homeowner, the limit is $808,000 for a single person and $1,133,000 for a couple. For every $1000 over the lower threshold, the fortnightly pension falls by $1.50.

These limits are changed annually and the pension amount is increased in March and September. The assets in the test are personal and household assets, investments, collectibles, your super, overseas assets and any cash you have. The valuations are not based on new prices and Centrelink allows people to value assets at less than they are insured for. Your home is excluded from the test but if it is on more than two hectares, the other hectares are included in the asset tests. (Go to the Centrelink website to see other exemptions such as an interest in a deceased estate before the estate is finalised, etc.)

The income test is another hurdle someone wanting a government or age pension has to jump. Thresholds are important here and if someone exceed the minimum threshold — $150 per fortnight for a single and $264 for a couple — the pension is reduced by 50 cents in the dollar for excess amounts for a single and 25 cents for each person in a couple. Once you go over the upper limits — $1608.60 a fortnight for a single and $2462.80 for a couple — the pension cuts out.

By the way, for couples separated because of illness, the upper limit is higher at $3181.20. For your information, there are three types of income included in the income test — actual income, deemed income and adjusted actual income.

Actual income comes from traditional sources such as employers, business, investments, rental incomes, etc. If you’re working past the age, you can receive a pension – only half of the first $500 earned per fortnight is counted in the test!

Deemed income is what the government assumes should be your income from investments. It means pensioners can’t go for low return investments just to benefit from the income test. There are two deeming rates for singles and couples. For a single it is three per cent per annum on the first $44,600 invested/saved and 4.5 per cent on the rest. For couples, where at least one person is getting a pension, it’s three per cent per annum for the first $74,400 on total financial assets and 4.5 per cent per annum on the rest.

Finally, adjusted actual income is where Centrelink reduces the value of the income for the test. The idea is that when you draw down a pension from a former super fund, eventually the income you receive will be your old capital you put in years ago. It has a silly name — the annual deductible purchase price — and is calculated by taking the value of the super account and dividing it by how long a person is expected to live based on a formula.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Thursday, September 15, 2011

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