YourLifeChoices Retirement Update January 2016 1

As with most money dilemmas the first step is to shine a light on the numbers you need in order to assess your financial situation.

The YourLifeChoices Retirement Update assists you to better understand your situation by giving context to the challenges of retirement income in the following ways;

1. Actual costs of living in retirement for the September 2015 quarter.

2. A handy printable table so you can compare your own spending patterns.

3. A government update, which explains changes to Aged Care means testing, defined benefit income streams, the new Medicare safety net and a more streamlined approach to Commonwealth Seniors Health Card claims.

4. A brief update on the performance of Australian super funds in 2015 – and a look ahead to possible returns in 2016.

5. A handy table to remind you of the current income and asset tests applied to the Age Pension and current rates of payment.

We also share the most recent data on average and median super balances, so you can compare your savings with other retirees.

Read on so you can be totally up-to-date with the numbers that matter most in retirement.

How is your retirement tracking?Are you managing to live within your means?Or is your lifestyle becoming rather restricted due to your fixed income?

ISSUE 8 JanUary 2016

Retirement Update

YourLifeChoices Retirement Update January 20162

Your retirement living costs

September quarter costsIn December, the Association of Super Funds of Australia (ASFA) released the ASFA Retirement Standard. ASFA has kindly allowed YourLifeChoices to share this information.

Expenditure items Comfortable couple

Modest couple

Comfortable single female

Modest single female

Building and contents insurance 31.14 24.65 25.95 24.74Rates 36.57 31.14 31.14 31.26

Home improvements 10.37 0.00 10.37 0.00Repairs and maintenance 18.16 12.97 15.56 15.63

Total housing 96.24 68.76 83.02 71.63

Electricity and gas 56.48 54.51 41.65 41.01Total energy 56.48 54.51 41.65 41.01

Food – groceries and other fresh food 198.52 159.92 110.29 77.20Total food 198.52 159.92 110.29 77.20

Bundle of home phone, broadband, mobile 31.31 15.67 24.60 8.95Total communications 31.31 15.67 24.60 8.95

Household cleaning and other supplies 25.92 15.55 18.66 10.37Cosmetic and personal care items 3.09 2.98 6.95 1.99

Barber or hairdresser 20.74 8.94 14.90 4.99Music and CDs 2.17 0.00 0.32 0.00

Newspapers and magazines 8.31 1.93 8.11 2.43Computer, printer, software 4.25 4.25 4.25 4.25

Household appliances 11.90 3.02 10.14 3.02Pest control, alarm service 12.73 0.00 12.73 0.00

Total household goods and services 89.11 36.67 76.07 27.04

Clothing 56.78 28.39 37.86 17.49Total clothing and footwear 57.43 28.71 38.28 17.69

Car transport and running costs 137.30 91.26 137.30 91.26Public transport 5.32 5.32 2.66 2.66Total transport 142.62 96.58 139.96 93.92

Health insurance 82.38 66.07 41.91 33.03Chemist 24.22 3.30 13.36 1.86

Co-payment and out of pocket 42.50 12.81 29.21 7.69Total health services 149.11 82.18 84.48 42.58

Membership clubs 9.74 1.95 4.89 0.98TV, DVD, digital camera 1.80 0.90 1.80 0.90

Alcohol consumed in home (or equivalent spent) 40.67 15.25 25.42 10.17Lunches and dinners out 81.34 25.32 60.77 30.39

Cinema, plays, sport and day trips 13.63 18.99 6.81 5.85Domestic vacations 77.92 37.01 66.23 18.51Overseas vacations 54.53 0.00 37.01 0.00

Sundry items 30.08 11.68 23.07 7.79Total leisure 309.72 111.11 226.01 74.58

Gifts and/or alcohol or tobacco 0.00 0.00 0.00 0.00

Total weekly expenditure $1,129.88 $653.78 $823.92 $454.43Total annual expenditure $58,915 $34,090 $42,962 $23,695

Weekly expenditure for retirees aged 65–85 IncreasedNo change Decreased

YourLifeChoices Retirement Update January 2016 3

Expenditure items Weekly Monthly Annual

Building and contents insuranceRates

Home improvementsRepairs and maintenance

Total housing

Electricity and gasTotal energy

Food – groceries and other fresh foodTotal food

Bundle of home phone, broadband, mobileTotal communications

Household cleaning and other suppliesCosmetic and personal care items

Barber or hairdresserMusic and CDs

Newspapers and magazinesComputer, printer, software

Household appliancesPest control, alarm service

Total household goods and services

ClothingTotal clothing and footwear

Car transport and running costsPublic transportTotal transport

Health insuranceChemist

Co-payment and out of pocketTotal health services

Membership clubsTV, DVD, digital camera

Alcohol consumed in home (or equivalent spent)

Lunches and dinners outCinema, plays, sport and day trips

Domestic vacationsOverseas vacations

Sundry itemsTotal leisure

Gifts and/or alcohol or tobacco

Total expenditure

How does your spending compare?

Your retirement BuDget

YourLifeChoices Retirement Update January 20164

Government updateThe beginning of 2016 sees several measures from the last two budgets take effect.

Here is how they may affect you in the coming months.

Aged Care – alignment of aged care means testing arrangementsCurrently, when an aged care resident pays at least part of their accommodation costs by periodic payments, the rental income from their former home is exempt. From 1 January 2016, this exemption will be removed for all new residents who move to an aged care facility after this date.

The net rental income will be assessed under the aged care means test.

Those who have entered aged care before this date will not be affected. This is a measure from the 2015/16 Federal Budget.

Changes to assessment of defined benefit income streams On 1 January 2016, changes will take place to the way Centrelink assesses the income from defined benefit superannuation schemes.

Centrelink will cap the deductible amount, also known as the tax-free component, from such schemes to 10 per cent – the deductible amount is the amount that is not assessed as income.

For example, if you receive an income from a defined benefit scheme of $50,000 each year and the tax-free component is $7000, then your assessable income will be $43,000.

Under the new rules only an amount equivalent of 10 per cent of the annual income can be excluded from the income test. For example, 10 per cent of $50,000 is $5000, therefore your assessable income is $45,000.

You can find out more at Humanservices.gov.au.

Introduction of the new Medicare Safety NetFrom 1 January 2016 there will be a limit on the out-of-pocket costs that count towards reaching the new Medicare Safety Net threshold. The maximum you will be able to accumulate is 150 per cent of the Medicare Benefits Schedule Fee, minus

the Medicare Benefits Schedule. Out-of-pocket expenses above that amount will not count towards the threshold.

The thresholds that will apply from 1 January 2016 are:• $400 for singles and families with Commonwealth

concession cards• $700 for families who qualify for Family Tax

Benefits Part (A), and single people without concession cards; and

• $1000 for all other couples and families.

To find out more and for examples of how the new thresholds may affect Medicare benefits payable, visit mbsonline.gov.au.

Online claim for Commonwealth Seniors Health Card now easierIf your income has changed and you think you may now be eligible for a Commonwealth Seniors Health Card, claiming online from Human Services is now easier. Simply log into your MyGov account and, if you’ve previously been a Centrelink customer, the system will automatically fill in your details, so you only have to update anything that has changed.

To view the current income limits for a Commonwealth Seniors Health Card, visit YourLifeChoices.com.au.

YourLifeChoices Retirement Update January 2016 5

SuperRatings update2015 has been a somewhat bumpy ride for

superannuation funds, with returns more volatile this year in comparison to previous

years. Based on data from independent research firm, SuperRatings, the return for the 10-months to the end of October 2015 stood at six per cent for superannuation funds’ balanced investment options, which are those that invest between 60 and 76 per cent of their assets in growth investments, such as Australian and overseas shares and property. While November was a reasonable month for investors producing positive returns, the first two weeks of December were challenging, with the movement in the Australian and global sharemarkets being downward, wiping out some of the earlier gains this year.

The SuperRatings data also showed that the average account balance across superannuation investors stood at approximately $62,000 in 2015, rising strongly from $55,000 in 2014, due to reasonable investment returns and continuing strong contribution levels. At retirement, however, superannuation balances are substantially higher, with the average pension investor account balance sitting at approximately $248,000, also up from $230,000 in the prior year. With higher account balances in retirement and investment market volatility likely to continue for the foreseeable future, it makes it especially important for retirees to actively engage with your superannuation fund to monitor the investments selected, when in retirement, in order to minimise the potential for losses.

While it remains near impossible to predict the investment returns for 2016, anecdotal evidence suggests that global growth is likely to remain reasonably subdued next year, resulting in the expectations for investment returns also being relatively low. The majority of superannuation funds target a return of inflation plus three per cent annually in relation to their balanced investment options, which equates to around five – six per cent for the year. Based on the evidence collected, SuperRatings estimates that this return is likely to be achievable in 2016, however, this will obviously depend upon a number of global factors and only time will tell how accurate this prediction will be!

Adam Gee Chief Executive Officer, SuperRatings

SuperRatings is an independently owned superannuation research and consulting company providing data analysis, information, consulting services and product benchmarking to the superannuation industry, corporate sector and the general public. SuperRatings prides itself on providing impartial advice to all segments of the market. It actively promotes engagement, education and ownership of superannuation through the provision of a range of research, ratings and consultancy services. Offering the most extensive industry coverage accounting for over $1.2 trillion in funds under management and 22 million member accounts, this allows SuperRatings to understand the various costs, fees, products, services and performance of superannuation funds and benchmark these against the broader market.

YourLifeChoices Retirement Update January 20166

Super balances at retirement: where do you sit?

I n December 2015 the Association of Superannuation Funds of Australia (ASFA) released data on the level of superannuation

account balances by age and gender. Average balances do not tell us much per se, as some people have ridiculously high super savings while others have no super whatsoever, so these numbers tend to be skewed.

For instance, in 2013/14, the average super balances at retirement (assumed to be 60-64 years of age) were $292,500 for men and $138,150 for women. The median balance is of much more value, and this reveals a very sorry story, with $100,000 for men and $28,000 for women.

So, if your savings fall a long way short of the $1 million target touted so glibly by the so-called economic experts, you may take heart from these statistics that show the median balance to be just one-tenth of the recommended target.

But while both average and median super balances are increasing over time, the median amounts are simply too low, even when combined with an Age Pension, to fund a dignified and connected retirement. And if you are a woman with a median balance of $28,000, then you will be aware just how tough it is to live a hand-to-mouth existence in modern-day Australia.

Read the full report at Superannuation.asn.au

Average Median Your super savings

Men $292,500 $100,000 $................................

Women $138,150 $28,000 $................................

*source ASFA Superannuation account balances by age and gender December 2015

How do you compare?Super savings at retirement (age 60-64)

YourLifeChoices Retirement Update January 2016 7

Check your Age Pension entitlement

Family situation Pension rate per fortnight

Single $788.40

Couple $594.30 each or $1,188.60 combined

Couple separated due to ill health $788.40

Note: These amounts do not include the Pension Supplement, a fortnightly payment made in addition to the base pension. The maximum rate of Pension Supplement for singles and for each member of a couple separated due to ill health is, at date of publication, $64.50 per fortnight, and for couples $97.20 per fortnight (combined).

Whether you’re entitled to an Age Pension, and at what rate you will be paid, is largely determined by an income and asset test. As the thresholds are indexed in March, June and September each year, it’s worth checking at least once a year to see if you’re eligible

The following income and asset thresholds apply until 19 March 2016:

Government income test for the Age Pension

Situation For full pension/allowance(per fortnight) For part pensions (per fortnight)*

Single up to $162 less than $1,896.00

Couple (combined) up to $288 less than $2,902.00

Illness separated (couple combined) up to $288 less than $3,756.00

Income test limitsYour fortnightly Age Pension payment will reduce by 50 cents for every dollar of income you receive above the current full Age Pension limit until you reach the part pension threshold.

Government Asset test limits for full Age Pensions

Situation Homeowners Non-homeowners

Single $205,500 $354,500

Couple (combined) $291,500 $440,500

Illness separated (couple combined) $291,500 $440,500

One partner eligible (combined assets) $291,500 $440,500

Government Asset test limits for part Age Pensions

Situation Homeowners Non-homeowners

Single $783,500 $932,500

Couple (combined) $1,163,000 $1,312,000

Illness separated (couple combined) $1,447,500 $1,596,500

One partner eligible (combined assets) $1,163,000 $1,312,000

Asset test limitsYour fortnightly Age Pension payment will reduce by $1.50 cents for every $1000 you are above the current full pension asset limit until you reach the part Age Pension threshold.

Maximum payment rates of Age Pension

Disclaimer: This material contains general information which has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this advice you should consider its appropriateness having regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that impact your financial and legal circumstances. Date prepared is January 2016.

© YourLifeChoices 2016