Note: The case studies have been supplied and updated by the
Around 80% of retired Australians receive a part or full
Background: The Age Pension is the taxpayer-funded basic retirement income stream for those people who can’t fully support themselves, although in practical terms it also operates as a supplementary income source for Australians with other savings. The single rate Age Pension is set to at least 27.7 per cent of Male Total Average Weekly Earnings. An eligible individual must satisfy the
You can check out case studies listed below by continuing to read this article.
- Case Study 1: John, single, owns his home, $165,000 in financial assets ($150,000 in super and $15,000 in the bank)
- Case Study 2: Chris, single, owns his own home, earns $40,000 a year working, and has $300,000 in financial assets ($250,000 in super and $50,000 in the bank)
- Case Study 3: Frank and Janet: Frank is retired and Janet (age 60) works earning $42,500 a year, and Frank has $550,000 in financial assets ($450,000 in super and $100,000 in the bank)
Note: The case studies use Age Pension rates and income and assets tests current as at May 2012 (namely, March 2012 Age Pension rates and thresholds). SuperGuide has added some explanatory text to the case studies for ease of reading.
Case Study 1: John, single and $165,000 in super and cash
Single pensioner & completely retired. John owns his own home and has a budget of $500pw ($26,000pa). He has $165,000 in financial assets. If John leaves his super untouched, he is entitled to $700 a fortnight in Age Pension payments (around $18,200 a year). If John starts an account-based pension with his $150,000 in super savings, then he is entitled to $755 a fortnight in Age Pension payments (around $19,630 a year). Read on to discover how this works.
1.1 Assume John leaves his cash in the bank and doesn’t touch his super
Deemed income calculated on John’s financial assets…
| John: Financial Assets – Single |
Totals |
||
| Bank Accounts |
$15,000 |
||
| Superannuation |
$150,000 |
||
| Shares |
$0 |
||
| $ | |||
|
$165,000 |
|||
| Deemed Income | |||
| $44,600 |
$44,600 |
3.0% |
$1,338 |
|
$120,400 |
4.5% |
$5,418 |
|
|
$165,000 |
p.a. |
$6,756 |
|
John’s financial position is…
| John: |
|||
| Type | Detail |
$ Asset |
$ Income |
| Financial Assets | (deemed income) |
$165,000 |
$6,756 |
| Acct Based Pension | |||
| Employment Income | |||
| Real Estate | |||
| Other | |||
| Other | |||
| Home Contents |
$5,000 |
||
| Motor Vehicles |
$10,000 |
||
| Totals |
$180,000 |
$6,756 |
|
| Work Bonus Red’n | must be APA & on pension | ||
|
Income p.a. |
$6,756 |
||
|
Assets / Income p.f. |
$180,000 |
$260 |
|
Applying the level of John’s income and assets…
| John: Rate – Single Pensioner (HO) |
**You are paid the lower rate |
Max: | $755.50 | |||
| New Rate (50% Taper) |
Rate p.f. |
|
Min: | $32.40 | ||
|
$180,000 |
Assets: |
$755.50 |
Asset: | $186,750 | ||
|
$6,756 |
Income (pa): |
$700.58 |
** | nonTax: | $39.20 | |
Age Pension outcome: John’s approximate rate of payment per fortnight is $700
1.2 Assume John starts an account-based pension with $150,000
Assume that John commences an account based pension with $150,000 drawing 5% annual income.
Deemed income calculated on John’s financial assets…
| John: Financial Assets – Single |
Totals |
||
| Bank Accounts |
$15,000 |
||
| Managed Investments | |||
| Shares |
$0 |
||
|
$15,000 |
|||
| Deemed Income | |||
| $44,600 |
$15,000 |
3.0% |
$450 |
|
$0 |
4.5% |
$0 |
|
|
$15,000 |
p.a. |
$450 |
|
John’s financial position is…
| John: Centrelink Assessment | |||
| Type | Detail |
$ Asset |
$ Income |
| Financial Assets | (deemed income) |
$15,000 |
$450 |
| Acct Based Pension | Gross annual income $7,500 |
$150,000 |
$0 |
| Employment Income | |||
| Real Estate | |||
| Other | |||
| Other | |||
| Home Contents |
$5,000 |
||
| Motor Vehicles |
$10,000 |
||
| Totals |
$180,000 |
$450 |
|
| Work Bonus Red’n | must be APA & on pension | ||
|
Income p.a. |
$450 |
||
|
Assets / Income p.f. |
$180,000 |
$17 |
|
Applying the level of John’s income and assets…
| John: Rate – Single Pensioner (HO) |
**You are paid the lower rate |
Max: | $755.50 | |||
| New Rate (50% Taper) |
Rate p.f. |
|
Min: | $32.40 | ||
|
$180,000 |
Assets: |
$755.50 |
Asset: | $186,750 | ||
|
$450 |
Income (pa): |
$755.50 |
** | nonTax: | $39.20 | |
Age Pension outcome: John’s approximate rate of payment per fortnight is $755
1.3 How an account-based pension can increase John’s Age Pension entitlements
The Deduction Amount (DA) of an account-based income stream is based on the ‘purchase price’ and the life expectation of the person at the time of purchase. The life expectation factor is divided into the purchase price to calculate the Deduction Amount. If there are subsequent commutations, the purchase price is reduced but the life expectation factor remains the same, thus reducing the Deduction Amount.
Each July, the annual income from the income stream has to be reset and is dependent on the person’s age and the account balance at that time. Using the July 2007 factors, for a person of age 65, the minimum PVF or percentage is 5% and the maximum PVF or percentage is 100%. Based on an account balance of $150,000, the level of income selected must be between $7,500 and $150,000 per year. Note: For the 2011/12 financial year, the minimum pension payment (income) level has been reduced to 75% of the calculated amount.
| John: Income Stream – Account Based Pension |
Asset Value: $150,000 |
Centrelink Assessment (p.a.) |
||
|
$7,500 |
Gross Income (p.a.) | Gross Income: |
$7,500 |
|
|
$150,000 |
Purchase Price (less commutations) | Deduction Amount: |
$8,091 |
|
|
18.54 |
Relevant No (fixed) | Assessed Income: |
$0 |
|
Net Income Table (for scenario 1.1 – savings in bank and left in accumulation phase in super)
| John: Total Disposable Gross Income | |
| Age Pension |
$18,215 |
| Income Stream |
$0 |
| Account Based Pension |
$0 |
| Interest |
$0 |
| Total |
$18,215 |
| Less tax |
$0 |
| Other Deduction | |
| Net Income |
$18,215 |
Net Income Table (for scenario 1.2 – starting an account-based pension with $150,000)
| John: Total Disposable Gross Income | |
| Age Pension |
$19,643 |
| Income Stream |
$0 |
| Account Based Pension |
$7,500 |
| Interest |
$0 |
| Total |
$27,143 |
| Less tax |
$0 |
| Other Deduction | |
| Net Income |
$27,143 |
Note: By starting an account-based pension (scenario 1.2) , John would receive an extra $1,428 in Age Pension each year. He would also no longer pay
Case Study 2: Chris, single, earning $40,000 a year, $300,000 in savings and super
Chris is a single pensioner earning $40,000 pa as an employee. He owns his own home and has a budget of $578pw ($30,000pa). If Chris leaves his super in accumulation phase (assuming he is
2.1 Assume Chris leaves his super in accumulation phase
Deemed income calculated on Chris’s financial assets…
| Chris: Financial Assets – Single |
Totals |
||
| Bank Accounts |
$50,000 |
||
| Superannuation |
$250,000 |
||
| Shares |
$0 |
||
|
$300,000 |
|||
| Deemed Income | |||
|
$44,600 |
3.0% |
$1,338 |
|
|
$255,400 |
4.5% |
$11,493 |
|
|
$300,000 |
p.a. |
$12,831 |
|
Chris’s financial position is…
| Chris: Centrelink Assessment | |||
| Type | Detail |
$ Asset |
$ Income |
| Financial Assets | (deemed income) |
$300,000 |
$12,831 |
| Acct Based Pension | |||
| Employment Income |
$40,000 |
||
| Real Estate | |||
| Other | |||
| Other | |||
| Home Contents |
$5,000 |
||
| Motor Vehicles |
$10,000 |
||
| Totals |
$315,000 |
$52,831 |
|
| Work Bonus Red’n | must be APA & on pension |
$6,500 |
|
|
Income p.a. |
$46,331 |
||
|
Assets / Income p.f. |
$315,000 |
$1,782 |
|
Applying the level of Chris’s income and assets…
| Chris: Rate – Single Pensioner (HO) |
**You are paid the lower rate |
Max: | $755.50 | |||
| New Rate (50% Taper) |
Rate p.f. |
|
Min: | $32.40 | ||
|
$315,000 |
Assets: |
$563.13 |
Asset: | $186,750 | ||
|
$46,331 |
Income (pa): |
$0.00 |
** | nonTax: | $39.20 | |
Age Pension outcome: Chris’s approximate rate of Age Pension payment per fortnight is $0 (zero).
2.2 Assume Chris starts an account-based pension with $290,000
Assume that Chris contributes $41,000 from his bank accounts into his accumulation superannuation account. Chris then commences an account-based pension with $290,000 drawing 5% annual income. He leaves $1,000 in his accumulation super account so that his employer contributions can still be accepted.
Deemed income calculated on Chris’s financial assets…
| Chris: Financial Assets – Single |
Totals |
||
| Bank Accounts |
$9,000 |
||
| Superannuation |
$1,000 |
||
| Shares |
$0 |
||
|
$10,000 |
|||
| Deemed Income | |||
| $44,600 |
$10,000 |
3.0% |
$300 |
|
$0 |
4.5% |
$0 |
|
|
$10,000 |
p.a. |
$300 |
|
Chris’s financial position is…
| Chris: Centrelink Assessment | |||
| Type | Detail |
$ Asset |
$ Income |
| Financial Assets | (deemed income) |
$10,000 |
$300 |
| Acct Based Pension | Gross annual income $14,500 |
$290,000 |
$0 |
| Employment Income |
$40,000 |
||
| Real Estate | |||
| Other | |||
| Other | |||
| Home Contents |
$5,000 |
||
| Motor Vehicles |
$10,000 |
||
| Totals |
$315,000 |
$40,300 |
|
| Work Bonus Red’n | must be APA & on pension |
$6,500 |
|
|
Income p.a. |
$33,800 |
||
|
Assets / Income p.f. |
$315,000 |
$1,300 |
|
Applying the level of Chris’s income and assets…
| Chris: Rate – Single Pensioner (HO) |
**You are paid the lower rate |
Max: | $755.50 | |||
| New Rate (50% Taper) |
Rate p.f. |
|
Min: | $32.40 | ||
|
$315,000 |
Assets: |
$563.13 |
Asset: | $186,750 | ||
|
$33,800 |
Income (pa): |
$180.50 |
** | nonTax: | $39.20 | |
Age Pension outcome: Chris’s approximate rate of payment per fortnight is $180.
2.3 How an account-based pension can increase Chris’s Age Pension entitlements, and his net income
The Deduction Amount (DA) of an account-based pension is based on the ‘purchase price’ and the life expectation of the person at the time of purchase. The life expectation factor is divided into the purchase price to calculate the Deduction Amount. If there are subsequent commutations the purchase price is reduced but the life expectation factor remains the same, thus reducing the Deduction Amount.
Each July the annual income from the income stream has to be reset and is dependent on the person’s age and the account balance at that time. Using the July 2007 factors, for a person of age 65, the minimum PVF or percentage is 5% and the maximum PVF or percentage is 100%. Based on an account balance of $290,000, the level of income selected must be between $14,500 and $290,000 per year. Note: for the 2011/12 financial year, the minimum pension payment (income) level has been reduced to 75% of the calculated amount.
| Chris: Income Stream – Account Based Pension |
Asset Value: $290,000 |
Centrelink Assessment (p.a.) |
||
|
$14,500 |
Gross Income (p.a.) | Gross Income: |
$14,500 |
|
|
$290,000 |
Purchase Price (less commutations) | Deduction Amount: |
$15,642 |
|
|
18.54 |
Relevant No (fixed) | Assessed Income: |
$0 |
|
Net Income Table (Scenario 2.1 – leaving super in accumulation phase)
| Chris: Total Disposable Gross Income | |
| Age Pension |
$0 |
| Employment Income |
$40,000 |
| Account Based Pension | |
| Interest @ 5% ($40,000 invested) |
$2,000 |
| Total |
$42,000 |
| Less tax |
$4,922 |
| Other Deduction | |
| Net Income |
$37,078 |
For 2011/12, the Senior Australian Tax Offset for a single person with a taxable income of $42,000 is $838. For the 2011/12 financial year, with a gross income of $42,000, the tax and
The above calculations do not include the Flood Levy.
Net Income Table (Scenario 2.2 – starting an account-based pension)
| Chris: Total Disposable Gross Income | |
| Age Pension |
$4,693 |
| Employment Income |
$40,000 |
| Account Based Pension |
$14,500 |
| Interest |
$0 |
| Total |
$59,193 |
| Less tax (only an estimate) |
$6,214 |
| Other Deduction | |
| Net Income |
$52,979 |
For 2011/12 year, the Senior Australian Tax Offset for a single person with a taxable income of $44,693 is $502. For the 2011/12 financial year, with a gross income of $44,693, the tax and Medicare Levy payable is $6,214 leaving a net income of $38,479 (this amount includes the application of an offset of $524). Chris then adds his tax-free account-based pension income of $14,500 which amounts to an annual after-tax income of $52,979. The above calculations do not include the Flood Levy.
Note: By opting to start an account-based pension, Chris can expect the following outcomes:
- receipt of the pensioner concession card.
- eligibility for a superannuation co-contribution of approximately $574.
- tax-free income and earnings from account based pension and therefore save on 15% tax on earnings: $290,000 @ 5% p.a. = $14,500 earnings (minus 15% tax = $2,175)
Case Study 3: Frank (retired) & Janet (age 60 and working), $550,000 in super and other savings
Frank is of Age Pension age and completely retired. Janet is 60 years old and is working earning $42,500pa. They have a budget of $1,000pw ($52,000pa). If Frank leaves his super in accumulation phase, the Age Pension income and assets test mean that Frank would receive no Age Pension. A possible strategy is for Frank to withdraw his superannuation and make a non-concessional contribution of $450,000 into Janet’s superannuation accumulation account. Under such a strategy, his Age Pension entitlement will be is $194 a fortnight. Alternatively, if Frank chooses to start an account-based pension, his Age Pension entitlement will also be $194 a fortnight, but his net income will be substantially higher under this strategy rather than redirecting the cash to his wife’s super account.
3.1 Assume Frank leaves his super in accumulation phase
| Frank &Janet: Financial Assets – Couple |
Totals |
||
| Bank Accounts |
$100,000 |
||
| Superannuation (Frank) |
$450,000 |
||
| Shares | |||
|
$550,000 |
|||
| Deemed Income | |||
| $74,400 |
$74,400 |
3.0% |
$2,232 |
|
$475,600 |
4.5% |
$21,402 |
|
|
$550,000 |
p.a. |
$23,634 |
|
Frank & Janet’s financial position is…
| Frank & Janet: Centrelink Assessment | |||
| Type | Detail |
$ Asset |
$ Income |
| Financial Assets | (deemed income) |
$550,000 |
$23,634 |
| Acct Based Pension | |||
| Employment Income | Janet |
$42,500 |
|
| Real Estate | |||
| Other | |||
| Other | |||
| Home Contents |
$10,000 |
||
| Motor Vehicles |
$20,000 |
||
| Totals |
$580,000 |
$66,134 |
|
| Work Bonus Red’n | must be APA & on pension | ||
|
Income p.a. |
$66,134 |
||
|
Assets / Income p.f. |
$580,000 |
$2,544 |
|
Applying the level of Frank & Janet’s income and assets…
| Frank & Janet: Rate – Pensioner Couple (HO) each |
**You are paid the lower rate |
Max: | $569.50 | |||
| New Rate (50% Taper) |
Rate p.f. |
|
Min: | $24.40 | ||
|
$580,000 |
Combined Assets: |
$333.25 |
Asset: | $265,000 | ||
|
$66,134 |
Combined Income (pa): |
$0.00 |
** | nonTax: | $27.90 | |
Age Pension outcome: Frank & Janet’s approximate rate of payment per fortnight is $0 (zero).
Frank & Janet’s net income if Frank keeps his super in accumulation phase:
Net Income Table (scenario 3.1)
| Frank & Janet: Total Disposable Gross Income | |
| Age Pension |
$0 |
| Employment Income |
$42,500 |
| Account Based Pension | |
| Interest @ 5% ($100,000 invested) |
$5,000 |
| Total |
$47,500 |
| Less tax |
$6,648 |
| Other Deduction | |
| Net Income |
$40,852 |
For the 2011/12 financial year, with a gross income of $47,500, the tax and Medicare Levy payable is $6,648 leaving a net income of $40,852. The above calculations do not include the Flood Levy.
3.2 Assume Frank withdraws his super and redirects the $450,000 to Janet’s super account as a non-concessional contribution
| Frank & Janet: Financial Assets – Couple |
Totals |
||
| Bank Accounts |
$100,000 |
||
| Superannuation (Frank) |
$0 |
||
| Shares | |||
|
$100,000 |
|||
| Deemed Income | |||
| $74,400 |
$74,400 |
3.0% |
$2,232 |
|
$25,600 |
4.5% |
$1,152 |
|
|
$100,000 |
p.a. |
$3,384 |
|
Frank & Janet’s financial position is…
| Frank & Janet: Centrelink Assessment | |||
| Type | Detail |
$ Asset |
$ Income |
| Financial Assets | (deemed income) |
$100,000 |
$3,384 |
| Acct Based Pension | |||
| Employment Income | Janet |
$42,500 |
|
| Real Estate | |||
| Other | |||
| Other | |||
| Home Contents |
$10,000 |
||
| Motor Vehicles |
$20,000 |
||
| Totals |
$130,000 |
$45,884 |
|
| Work Bonus Red’n | must be APA & on pension | ||
|
Income p.a. |
$45,884 |
||
|
Assets / Income p.f. |
$130,000 |
$1,765 |
|
Applying the level of Frank & Janet’s income and assets…
| Frank & Janet: Rate – Pensioner Couple (HO) each |
**You are paid the lower rate |
Max: | $569.50 | |||
| New Rate (50% Taper) |
Rate p.f. |
|
Min: | $24.40 | ||
|
$130,000 |
Combined Assets: |
$569.50 |
Asset: | $265,000 | ||
|
$45,884 |
Combined Income (pa): |
$194.31 |
** | nonTax: | $27.90 | |
Age Pension Outcome: Frank & Janet’s approximate rate of payment per fortnight is $194
Net Income Table (by making super contribution to Janet’s account)
| Frank & Janet: Total Disposable Gross Income | |
| Age Pension |
$5,052 |
| Employment Income |
$42,500 |
| Account Based Pension | |
| Interest @ 5% ($100,000 invested) |
$5,000 |
| Total |
$52,552 |
| Less tax |
$6,648 |
| Other Deduction | |
| Net Income |
$45,904 |
Note: By opting to withdraw his super and redirect to Janet’s super account, Frank and Janet can expect the following outcomes:
- receipt of the pensioner concession card.
- eligibility for a superannuation co-contribution of approximately $564.
- tax-free income and earnings from account based pension and therefore save on 15% tax on earnings
- still be short of their budget by approx $7,100pa but they could draw down on some of their funds in the bank.
3.3 Assume Frank starts an account-based pension with $450,000 in super account
Alternatively, Frank commences an account based pension with his accumulated super drawing 5% annual income.
| Frank & Janet: Financial Assets – Couple |
Totals |
||
| Bank Accounts |
$100,000 |
||
| Superannuation (Frank) |
$0 |
||
| Shares | |||
|
$100,000 |
|||
| Deemed Income | |||
| $74,400 |
$74,400 |
3.0% |
$2,232 |
|
$25,600 |
4.5% |
$1,152 |
|
|
$100,000 |
p.a. |
$3,384 |
|
Frank & Janet’s financial position is…
| Frank & Janet: Centrelink Assessment | |||
| Type | Detail |
$ Asset |
$ Income |
| Financial Assets | (deemed income) |
$100,000 |
$3,384 |
| Acct Based Pension | Gross annual income $22,500 |
$450,000 |
$0 |
| Employment Income | Janet |
$42,500 |
|
| Real Estate | |||
| Other | |||
| Other | |||
| Home Contents |
$10,000 |
||
| Motor Vehicles |
$20,000 |
||
| Totals |
$580,000 |
$45,884 |
|
| Work Bonus Red’n | must be APA & on pension | ||
|
Income p.a. |
$45,884 |
||
|
Assets / Income p.f. |
$580,000 |
$1,765 |
|
Applying the level of Frank & Janet’s income and assets…
| Frank & Janet: Rate – Pensioner Couple (HO) each |
**You are paid the lower rate |
Max: | $569.50 | |||
| New Rate (50% Taper) |
Rate p.f. |
|
Min: | $24.40 | ||
|
$580,000 |
Combined Assets: |
$333.25 |
Asset: | $265,000 | ||
|
$45,884 |
Combined Income (pa): |
$194.31 |
** | nonTax: | $27.90 | |
Frank & Janet’s approximate rate of payment per fortnight is $194.
Net Income Table (scenario 3.3 – starting an account based pension)
| Frank & Janet Total Disposable Gross Income | |
| Age Pension |
$5,052 |
| Employment Income |
$42,500 |
| Account Based Pension |
$22,500 |
| Interest @ 5% ($100,000 invested) |
$5,000 |
| Total |
$75,052 |
| Less tax |
$6,648 |
| Other Deduction | |
| Net Income |
$68,404 |
Note: By starting an account-based pension, Frank can expect the following outcomes:
- Frank would receive the pensioner concession card
- Janet would be eligible for a government co-contribution of approximately $564
- Frank’s account based pension would be tax free and therefore save on 15% tax on earnings: $450,000 @ 5%pa = $22,500 pa earnings (minus 15% tax = $3,375)
****Frank & Janet would exceed their budget of $52,000 by approximately $15,000pa. This could then be re-invested into Janet’s name in accumulation superannuation as a non-concessional contribution.
How can an account-based pension increase Frank’s Age Pension entitlements, and Frank and Janet’s net income?
In Case study 3, scenario 3, Frank and Janet can increase Age Pension entitlements due to the benefit of a ‘Deduction Amount’, and increase net income because pension payments from an account-based pension, paid on after the age of 60, are not subject to income tax.
The Deduction Amount (DA) of an account-based pension is based on the ‘purchase price’ and the life expectation of the person at the time of purchase. The life expectation factor is divided into the purchase price to calculate the Deduction Amount. If there are subsequent commutations the purchase price is reduced but the life expectation factor remains the same, thus reducing the Deduction Amount.
Each July the annual income from the income stream has to be reset and is dependent on the person’s age and the account balance at that time. Using the July 2007 factors, for a person of age 65, the minimum PVF or percentage is 5% and the maximum PVF or percentage is 100%. Based on an account balance of $450,000, the level of income selected must be between $22,500 and $450,000 per year. Note: for the 2011/12 financial year, the minimum pension payment (income) level has been reduced to 75% of the calculated amount.
| Chris: Income Stream – Account Based Pension |
Asset Value: $450,000 |
Centrelink Assessment (p.a.) |
||
|
$22,500 |
Gross Income (p.a.) | Gross Income: |
$22,500 |
|
|
$450,000 |
Purchase Price (less commutations) | Deduction Amount: |
$24,272 |
|
|
18.54 |
Relevant No (fixed) | Assessed Income: |
$0 |
|
Hi Regan, After reading comments today I would like some help. My Husband is comeing up 65 and still working(ready to retire) and I am 60 not working(ill health) with reasonable assets and a private super fund having rolled over supers into it.
We need to set up assets so he can get a pension when he retires. We live in Tasmania
Hi Trevor,
Thanks for your interest =)
The first example (John) has no employement income but I have not provided any examples of a couple that have completely retired.
If you would like me to go through your specific circumstances I’ll be more than happy to go through the calculations and look at maximising your overall income. There are plenty of strategies that we can look at with their being an age gap between yourself and your wife (especially with your wife being below age pension age).
If you would like to send me an email my address is regan.welburn@humanservices.gov.au
I am a representative of the Financial Information Service at Centrelink which provides free financial education to all Australians. I’m happy to talk to you over the phone or even see you face to face if you are in the South Eastern Suburbs of Victoria…if not I can get you in touch with your local officer!
When ever there is an example of i.e. how much pension can you get.There is always someone
still earning a wage.
We are a average couple 65 my wife 61 we have no wage comming in we have a reasonable asset
base.
A lot of examples you give there are large ammounts in super(remember when compulsory came in
people in our age have only had a short time to build our super.)
Comletely agree with you Jon.
Most couples that I see currently need around $40,000pa to live off as long as they own their own home.
That is quite achievable just by having $200,000 in an account based pension.
A couple that has $200K in an account based pension drawing 6% annual income will take home $12,000pa tax free along with the maximum rate of age pension $29,354pa (as long as their combined assets don’t exceed $265,000).
That will give them a tax free take home pay of $41,354pa.
Based on your investment strategy in the article recently published the $200,000 should go a long way to outlasting them!
Cheers
On the guest contributor section of this website, I point out how $1 million can last longer than you by using an account based pension from a SMSF where the asset allocation is mainly Australian shares with imputation credits.
I have a friend who receives a part age pension from Centrelink which means he satisfies either the income or assets tests. He also use an account based pension from his SMSF and that means he benefits from the advantages listed above.
Even though he is on the age pension, he also uses my strategy where his SMSF is mainly based on Australian shares with imputation credits. This brings him a number of benefits.
1. He says he can achieve about 8% yield on his SMSF but his part age pension is determined by his deemed income not his actual income. So any SMSF income he gets above the deeming rate is a bonus and it does not affect his Centrelink pension.
2. Because he has the income security of both Centrelink and the predictable income from dividends, he can afford to take on more volatility risk. That means he can afford to have an asset allocation with a higher proportion devoted to growth assets, in this case Australian shares. So he gets high income from growth asset. He gets the best of both worlds.
3. Because his age pension is set by the assets test, when the share market has a periodic downturn, the market value of his assets (his SMSF shares) declines so he is entitled to a higher Centrelink pension, but his dividends from his SMSF are largely unaffected. So a market downturn actually means more income for him.. His Centrelink pension acts as a huge shock absorber to the volatility fo the share market..
He reckons he has the opposite problem. Because his income comes from a growth asset, he is concerned that the assets in his SMSF may grow to the point where he is no longer eligible for the Centrelink pension. I tell him that is a high quality problem to have.