Nick Bruining Q+A: A few tweaks to get $68,000 a year for life in retirement

Question

I am 68 and retired. My spouse is 64.

He would like to retire in the near future, though he is concerned that we do not have enough saved to ensure a safe and comfortable retirement.

With the mortgage fully paid off, we will have assets of $550,000, including a $20,000 car and money in superannuation.

Can you provide some basic information and advise to us on the best course of action please?

Answer

You can probably access a part age pension now if your affairs are properly arranged.

As a starting point, you will also need to include contents and personal effects in calculating the total assets assessed by Centrelink. Typically, we would assign $10,000 to that, so with the car included fixed assets would be about $30,000. The figure specifically excludes the value of your family home.

Assuming the $550,000 is in “financial” assets and with your home exempt, you are $98,500 over the home-owning asset test threshold for a couple of $481,500. If the $550,000 includes any superannuation in your spouse’s name, that is exempt from means testing until he reaches pension age in three years’ time.

You could deposit further money into his super from your savings to bring the total assessable asset amount under the $481,500 threshold. Assuming no other income, you would probably qualify for a full partner age pension of $888.50 a fortnight — or $23,101 a year as well as the Pensioner Concession Card. Typically, that card alone can save a household several thousand dollars a year in expenses.

You could then withdraw top-up amounts from his super to meet your day-to-day expenses.

If you expend $100,000 over the next three years, that would leave you with about $450,000 in financial assets when he reaches pension age.

If that were today, and the remaining amount converted to an account-based pension paying the minimum five per cent a year, your total income then would be about $68,000 a year, completely tax-free and indexed for life.

Question

I have a relatively small superannuation balance of about $194,000 and am now retired, receiving a part-pension form Centrelink. My wife works part-time and is under pension age.

Can I leave my super in its current fund and withdraw money if needed? At this stage, I don’t want to start an account-based pension.

My super fund has asked me to lodge a form with the Australian Taxation Office to keep it in the fund as I haven’t contributed for two years.

Is this correct?

Answer

The advice is puzzling and concerns “inactive fund” rules which require the fund to transfer the balance to the ATO. However, this only applies to accounts with a balance of less than $6000 and where the member has not satisfied a condition of release.

Neither applies to you but I would follow the ATO’s direction in case it effects a transfer to the ATO anyway.

You may also want to explore a strategy which sees you transfer all or some of your super to your wife’s account by cashing an amount out and then re-contributing to her fund.

Being on a part pension tells me that you are being caught under either the income test or the asset test. Your wife’s employment income is being assessed but, equally, the money in your super fund is being assessed under the income test and the asset test.

Because the money in your wife’s super account is ignored until she reaches retirement age, “hiding” the money in her super may see your age pension increase.

If currently asset-tested, each $10,000 you transfer could boost your age pension by up to $15 a fortnight until you reach the maximum of $888.50.

You should contact Centrelink via an in-person or phone appointment to identify what test is being used and make some decisions based on that information.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association