How to supplement your income with Centrelink benefits

SMSF technical expert and columnist for The Australian newspaper
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In my last article I wrote about the need for retirees to focus primarily on the income their investments can pay them and ensure that income increases at least as fast as the inflation rate.

As a guide, the ASFA Retirement Standard says that for a single person to have a comfortable retirement, they would need just under $42,000 a year in income at present. Couples after the same objective would need about $58,000 per annum.

You might need more or less than these numbers. I strongly encourage you to do a very detailed financial budget so you know how much your retirement will cost you each year.

The lump sum

I estimated last week that to generate ASFA’s retirement income amounts, single people would need about $870,000 and couples $1.2 million in super.

I based this on the assumption that you could initially earn 6% per annum income in total from your retirement assets. (This is roughly the annual return from dividends that the ASX 200 All Ordinaries Shares is delivering at present, including the full refund of franking credits.) Being a little conservative and for safety’s sake, I have applied a further haircut of 20% – bringing this down to 4.8% pa. After that initial return, you want the income you receive to at least increase at the rate of inflation, which is currently running at just over 2% per annum.

But, unfortunately, with these asset levels, you won’t be eligible to receive any Aged Pension from Centrelink.

Can I get the aged pension as well?

At present, Centrelink’s asset test sees single homeowners loose access to the Aged Pension when assets exceed $748,250, and couples suffer the same fate at $1,100,500 of assessable assets. If I assume that you also have $100,000 in non-super assets (excluding the family home), at the level required to earn the ASFA’s “comfortable retirement’, you won’t be eligible to receive any Aged Pension from Centrelink.

But you could still get some Centrelink Benefits up to those levels. The below table shows the combination of benefits and investment income you could receive, if you applied my 6% return theory with different levels of assets.

There are some assumptions about these numbers:

  1. You own your own home;
  2. I’ve assumed you’ve got $100,000 in non-super assets in retirement which don’t generate any investment income;
  3. Income from the account based pension is 4.8% pa.
  4. Couples are both eligible for the aged pension;
  5. Pension payments exclude clean energy & pension supplements;
  6. Product or administration fees have not been considered.

It is quite interesting to look at this data information graphically:

Finally, there is one very important caveat to these numbers – Account Based Pensions that commence after December 2015 will be subject to deeming. Right now ABPs receive a generous income test assessment. I’ll be looking at the impact on these numbers in another article soon.

Important: 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. Consider the appropriateness of the information in regards to your circumstances.

Also in the Switzer Super Report:

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