Case Study: Pre-retirement – Planning for Centrelink & Re-contribution Strategy

Published with permission

Below is a strategy we employed for clients of ours who were moving towards full retirement within the year.

There were many moving parts in the advice document we prepared, including them selling their home in Metro / South Eastern Melbourne suburbs, so they could relocate more permanently to their beach house, but also buying a small one bedroom apartment to use as a city pad for weekend visits. 

The plan addressed meeting their income needs in retirement and assessing any Centrelink eligibility they might have, while considering the needs of their estate.

One strategy of note is that due to an age discrepancy of five years between these clients (he is 65 and she is 60), we were able to re-organise their assets such that he became eligible for the Centrelink Age Pension for five years, versus not being eligible at all before our advice. There were other considerations at play as well, however undergoing the re-organisation was elected as it provided a risk free way of achieving a slightly better outcome, due to the fact that receiving the pension takes out some of the market risk under the alternative scenario’s assessed.

Another important strategy employed was a re-contribution strategy. It is a way of essentially moving super component balances around to make the estate value of their superannuation tax free to non-dependents.

In this instance, we were able to use the non-concessional contribution limits to achieve an outcome for the estate, where the result would be $22,000 of tax payable, compared to an estimated $104,000 if the strategy was not employed. This is a benefit to the estate of $82,000 without taking any more or less risk. 

This is a strategy that we believe many financial planners may miss in the right circumstances, as they are either unaware of it, it takes too much effort or it doesn’t make them money. Our philosophy is to always do the most we can for our clients and to work closely with their other advisers on the advice we provide.

In addition to the above, our analysis helped our clients understand how their position could look in retirement and whether their funds would be sufficient to allow them to continue to live the lifestyle they would like. Our conclusion was that they could have sufficient funds to see out their days, which provided them the peace of mind to take the steps of what can be a very uncertain transition in peoples lives.

Produced with our clients permission

If you are at or nearing retirement and would like to discuss your retirement needs, please contact us for a no obligation review of your position.

 

"GOOD FORTUNE NEEDS GREAT PLANNING"


GENERAL DISCLAIMER:

The content of this presentation is intended to be general information only and has been prepared without taking into account any person’s objectives, financial situation or needs. Each person should consider its appropriateness having regard to these matters or obtain relevant professional financial advice before making any financial decisions.  Examples are illustrative only. Each person should obtain any relevant professional financial, taxation and social security advice before making any financial decisions.