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Welcome to the third and final article in our three-part series on women and super. This article focuses on issues and strategies for women who have retired.
We know that women tend to retire with lower super balances than men and are expected to live longer on average, a combination that can lead to disappointing retirement income. After finishing work, you may feel that it’s too late to take remedial action, but many possibilities remain.
If you have retired, these tips can help you make the most of your super and have the best chance of a comfortable retirement.
1. Review your super pension payment
If you have an account-based pension in your super fund, actively managing it can be critical. Your annual payment amount is flexible and can determine whether you’re comfortable or living frugally.
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.
ASIC’s Moneysmart website provides a simple calculator that can help you run the numbers and estimate how long your pension will last based on 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 due to the means tests that provide a higher payment rate to those with less income and assets being assessed. As the payment from the Age Pension increases, it may be affordable to reduce payments from super pensions and ensure the balance lasts longer.
2. Don’t forget your investment strategy
Your investment strategy for your super pension is just as 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 income or deal with your balance running out faster.
A common solution is to employ a bucket strategy, retaining funds required for short-term spending in secure assets and the remainder of your account in more aggressive options.
Also, ensure your pension provider charges low fees and generates a competitive investment return. Don’t be afraid to move your money if you’re not happy.
Take a look at our comprehensive guide to pension fund performance.
3. Plan for possible inheritance
It doesn’t make for polite conversation, but it’s a fact of life that men have a lower life expectancy than women. If you have a male partner, it makes sense to think about what to do if he were to pass away. Even if your situation is different, you never know what the future holds, so being aware of your options makes sense.
If your partner has a super pension, consider the merits of being nominated as reversionary pensioner. A surviving reversionary pensioner inherits the pension on the death of its original owner – meaning you retain the money in the tax-free retirement phase of super. Without a reversionary nomination you may still have 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 arrangements to stay under your transfer balance cap if required. This gives valuable breathing space and can allow you to retain 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 retain money in super.
If you inherit a lump sum outside super, remember it is possible to make super contributions until you turn 75. Using bring-forward rules you may be able to contribute up to $330,000 in one year. Once money is in super, you may use it to start a pension by stopping any current pension, combining the funds and using the combined amount to invest in a new pension. Retaining money in super pensions is generally desirable because of their tax-free status but keep your transfer balance cap in mind. Any amount above your cap can’t be transferred into a pension.
If contributing to super is not an option, you can consider an annuity or other alternative investments outside super.
4. 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.
5. 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 Age Pension once they spend some of their retirement savings.