RETIREMENT CASE STUDIES

1. Simple Retirement Plan + Centrelink

John and Carol Young have recently retired. John is 65 and Carol is 64. John has $150,000 in his super and Carol has $50,000 in her super. Their joint bank account holds $10,000 in savings.

The Youngs’ financial situation:

Total retirement funds: $210,000

Estimated cost of living: $40,000 p.a.

Investor personality: The Youngs are Conservative investors

John and Carol each start an Allocated Pension with their super, drawing a combined income of $12,300 each year from their allocated pensions. They are also entitled to a combined approximate total of $27,482 Age Pension each year from Centrelink.

Summary: Using this basic superannuation strategy, John and Carol are able to achieve a combined tax free income of $40,000 each year for 26 years.

Assumptions:

This case study assumes CPI of 3%, investment return of 6%, car and contents valued at $20,000 and that the Youngs own their own home. Centrelink figures effective 20 September 2010 are used. (The allowed income for a couple (combined) is “up to $256 per fortnight for a full Age Pension” and the allowed assets for a couple (combined) is “assets up to $259,000 to receive a full Age Pension”.

2. Flexible Allocated Pension meets couple's retirement needs

Before David Wright (62) retired, his main priority was to maximise his super and have a flexible way of meeting the retirement needs of him and his wife Margaret (60).

David and Margaret sought the professional advice of a Vision Super financial planner. It proved a wise move. David was able to start a pension that would keep his super savings and earnings tax free, provide tax free income and provide for Margaret if anything happened to him.

As a starting point, David opened a Vision Allocated Pension with his total super balance of $350,000. He nominated Margaret as the reversionary beneficiary of the pension, so that if he died, the pension ownership would pass to Margaret. For $5 a month, David also added the Vision SuperVantage Account to his pension. This extra feature linked his pension to a visa debit card, giving him global Visa acceptance and access to his funds from ATMs and through EFTPOS, phone and internet banking.

Working with their financial planner, the couple estimated that an income of $45,000 p.a. would meet the cost of a comfortable retirement. David elected to receive monthly income payments of $3,750 per month paid into his Vision SuperVantage Account. If the couple needed a lump sum for a car purchase or an overseas trip, they could also arrange additional withdrawals. The income from the allocated pension was tax free as David was over 60.

Protecting a partner’s welfare

Several years later, David passed away. Because he had nominated Margaret as his reversionary beneficiary, Margaret became the new owner of the Vision Allocated Pension. Each financial year Margaret was able to choose the level of pension income she received (as long as she withdrew the required minimum* for her age) and also arrange extra withdrawals. Along with peace of mind provided by financial stability, Margaret was able to continue her comfortable retirement free from debt.

*What is a required minimum?

By law, allocated pension account holders must withdraw a minimum amount from their pension each year. The amount varies according to age. From age 60-74, it is 4-5% of your account balance. From age 75-84, it is 6-7% of your account balance. From age 85-95+, it is 9-14% of your account balance. There is no maximum pension payment amount so you can take up to 100% of your account balance in any year.