Women and super (Part 3): Making the most of your assets after retirement

It is common for retirees to be conservative and withdraw only the minimum annual payment required, but many could comfortably withdraw more. The minimum is just that – a bare minimum. You might be happy to withdraw a higher amount to enjoy a higher income, particularly in the early retirement years when you’re likely to be more active and taking part in more social activities. You can always reduce payments later if you no longer need the income.

The Australian Securities and Investments Commission (ASIC)’s Moneysmart website provides a simple calculator that can help you run the numbers and estimate how long your pension will last with different withdrawal amounts, fees, and investment returns.

Also, keep in mind that as your assets reduce, the Age Pension tends to increase (if you are receiving a part pension). This is because means tests provide a higher payment rate to those with lower income and assets. As the payment from the Age Pension increases, it may be affordable to reduce withdrawals from your account-based pension and ensure the balance lasts longer.

3. Don’t forget your investment strategy

Your investment strategy for your super and other assets is vital. While it’s important that you’re comfortable with the level of risk, not including enough growth assets can compromise your returns. A low return means you must withdraw less to live on or deal with your money running out faster.

A common solution for account-based pensions is to use a bucket strategy, keeping money required for short-term spending in secure assets and the remainder of your account in more aggressive options.

Also, ensure your providers charge low fees and generate a competitive investment return. Don’t be afraid to move your money if you’re not happy.

4. Can you make last-minute super contributions?

If you have savings, investments, or other assets outside super it’s worth checking if you’re eligible to make super contributions. You can add to super if you’re under 75, but can only claim a tax deduction for your contributions if you’re under 67 or you meet the work test.

You may also be eligible to make a downsizer contribution if you sell a property. There is no maximum age for this type of contribution. See item 6, Consider your home as a source of retirement income, below.

Tax on your investment earnings could be lower in the super environment than outside the system, leaving more for your retirement. Super also provides convenient access to a wide range of investments and regular income payments.

Remember to consider any capital gains tax you will need to pay if you sell an investment to contribute to super.

5. Plan for possible inheritance

It doesn’t make for polite conversation, but it’s a fact of life that in couples one person will usually die before the other. If you have a partner, it makes sense to think about what each of you will do if the other passes away.

If you or your partner have a super pension, consider the merits of nominating each other as reversionary pensioners. A surviving reversionary pensioner inherits the pension on the death of its original owner – meaning they keep the money in the tax-free retirement phase of super. Without a reversionary nomination, there may still be the option to use the amount to start a pension, but it may instead be paid as a lump sum, depending on the rules of the fund.

When you inherit a pension via a reversionary nomination, you also have 12 months from the date of your partner’s death to make any changes required to stay under your transfer balance cap. This gives valuable breathing space and can allow you to keep money in the tax-free retirement phase for longer. We’re focusing on you here, but of course all the same benefits apply for your partner if you nominate them as a reversionary pensioner on your account.

Note that amounts from ‘death benefits pensions’ – a pension you inherit as a reversionary pensioner or start with super you received due to another person’s death – cannot be transferred back into the accumulation phase. You may only take death benefits as lump sums or in the form of a pension. However, you do have the option to transfer your own pension balance (or a portion of it) back to the accumulation phase to keep the money in super.

If you inherit a lump sum outside super, remember it is possible to make contributions until you turn 75. Using bring-forward rules, you may be able to contribute up to $390,000 in one year. Once money is in super, you can use it to start a pension if you have space under your transfer balance cap.

If contributing to super is not an option, you can consider an annuity or other alternative investments outside super.

6. Consider your home as a source of retirement income

For many of us, our home is likely to be our largest asset. If you fell behind in super savings, the equity in your home can be a valuable source of retirement income.

There are two main options to access your home as a source of retirement income. First, you may sell the home and downsize, using the released savings to create income. Secondly, you could use a reverse mortgage to stay in your home – either from a commercial provider or via the government’s Home Equity Access Scheme.

If you choose to downsize, there is the option to make a downsizer super contribution of up to $300,000 to super. If you have a spouse, they may also contribute up to $300,000 from the sale, for a total of $600,000. You need to be at least 55 years old, and there is no maximum age limit.

A reverse mortgage can provide you with a lump sum, regular income payments, or a line of credit that accumulates as a loan balance (with interest) that must be repaid when you sell your home or pass away. The government introduced laws in 2012 that mean you can’t be left owing more than the value of your home (no negative equity guarantee), but you should still be mindful of the risks, including that your Age Pension may be affected and you’re reducing the value of an asset you may later want to use to pay for aged care.

The Home Equity Access Scheme is essentially a government-provided reverse mortgage. It is fee free and relatively simple to manage but provides limited income payments.

7. Make sure you receive government benefits you’re entitled to

I’ll never forget giving advice to a woman who believed she wasn’t entitled to the Age Pension because she was still working. After talking to me and to Centrelink, she was delighted to discover she could get not only a part pension but also rent assistance without stopping her part-time employment.

The secret here is not to assume. Government entitlements are not always obvious and even if you’re not eligible now, you could be later. It is common for people who are initially ruled out by means tests to become eligible for the Age Pension once they spend some of their retirement savings.

Look into whether you’re eligible for the Age Pension or the Commonwealth Seniors Health Card (which provides lower-cost medicines and healthcare).