Retirement checklist for new year

A new year is always a great time for some soul searching and preparing for the upcoming year. This is the time when we make lots of promises to ourselves, only to break them few days after, but when it comes to retirement this is something every retiree should prepare for and review very seriously on annual basis.
So, to start the New Year on a positive note, let’s go over the checklist I have created for you to ensure this year will be a very successful one indeed.

Brian Tracy said: “The checklist is one of the most high-powered productivity tools ever discovered”

1. Apply for Age Pension

If you are turning 66.5 this year, apply for Age Pension. You can submit your application 13 weeks before you hit the magic number. You should really start preparation, setting up your assets and maximising your future entitlement, long before that date, but if you haven’t you still have time.
It is so much easier to have your money properly set up before you apply, then trying to fix any mistakes after. Not impossible, but why not try to get the highest entitlement from day one.

2. Concession card 

Once you receive your Age Pension entitlement, you will be automatically issued a concession card – HealthCare Card. Remember then immediately to apply for your discounts:
–  gas rebate
–  electricity rebate
–  water rebate
–  Council rate discount
–  Drivers license and region concessions
For list of other benefits available to you from your Concession Card, read: Pensioner Concessions Card – the best!

3. If not eligible for Age Pension, apply for Commonwealth Seniors Health Card.

Strangely enough, many retirees who are not eligible for Age Pension, hence nor receiving the HealthCare Card, somehow often do not apply for the Commonwealth Seniors Health Card.
This little gem will still provide you with a great deal of discounted benefits, which I explained in: Centrelink Concession Cards for your Retirement. During the covid pandemic it shows that the card is actually more than just discount for medical and pharmacy costs. We have seen income support for retirees as well as ability to claim up to 10 Rapid Antigen Tests available not only to pensioners with the HealthCare Card, but to holders of Commonwealth Seniors Health Card, as well as DVA cards.

4. Get MyGov organised

MyGov website has been developed with the view, that today you don’t go to the Centrelink office, and you don’t bother Centrelink officers anymore. All information exchange is happening via online system of MyGov. Sometimes it works, often it doesn’t, but that’s the new system we’ve been asked to follow.
So what can you do on MyGov:
–  update your income and your assets
–  check all your Medicare claims
–  collect all your health data via My Health Record
–  or even jump to My Tax to complete your tax return, which I would only recommend if your tax affairs are really very simple, otherwise, please consult an accountant to do it properly.

5. Check all your entitlements, not just federal, but from your state government as well.

I have already explained benefits throughout Australia: Concession Cards benefits per state, but please remember that for some of the benefits you need to reapply each year to actually receive them every year.

6. Revalue your assets

Very rarely I see pensioners updating values of their cars, boats. If you bought a car 2 or 3 years ago for $20,000, it is very likely that its value now might be closer to $10,000. If this is the case, that reduction in car value will increase your Age Pension by $780pa.
So update value of your belongings via MyGov or request your financial planner to do this on your behalf if he or she acts as your nominee. This is what I do every year during our annual reviews.

Also, Centrelink updates your market linked investments, such as shares and managed funds on 20th March and 20th September, so you don’t have to worry about updating Centrelink every time your investment portfolio goes up in value, as it happens automatically.
However, my recommendation is, that if your portfolio drops in value, notify Centrelink immediately and do not wait for the automated review. Your Age Pension will be recalculated again based on the information you provide.
At the end of the day, this is your income and money in your pocket.

7. Review your plans for the upcoming year

Beginning of the year is a great time to sit down with your calendar and decide what your plans for the year are going to be. Are you planning on any major expenses, such as home upgrades, buying a car, overseas holiday, selling family home to downsize? If this is the case, you need to be well prepared, adjust your investment planning accordingly as well as most likely review your income needs for that year.

Check the impact those plans will have on your total investment values and decide how many years less will the money last due to this spendings. If this is impacting longevity of your savings and your income, re-think the spending, but if you can afford it, go for it.

Also check if this planned activity cuts your future income dramatically. If this is the case, question necessity and importance of this plan. As I always say, once money is gone it is gone forever, including loss of any future growth and income those savings could make, so make sure you know in advance the impact of such big spending.

8. Adjust your investing to your plan

If based on your review, you believe this is either an urgent and necessary spending, or just simply you can afford it, then adjust your investments accordingly to ensure that your investments are prepared in advance for whatever expenses you need to meet or withdrawals you need to make.

Don’t do it in the very last minute, because if the market is not favorable at the time you need access to your funds, selling investments in the downturn market may result in sizable capital losses.

9. Additional income

I often get asked, can I have a higher income from my savings or investments or part-time work. The truth of the matter is that most retirees are assets tested, meaning your eligibility for Age Pension is declined or reduced under Assets Test and not Income Test.

So for example if you as a couple, have $800,000 in assets, therefore you are receiving $136.80 in Age Pension, you can easily earn annually $68,000, providing this includes all your income, together with the deemed income and work income. Your Age Pension is still reduced due to Assets Test, so your income up to that level has no negative impact on your Age Pension eligibility.

10. Pension funds

Unless you really struggle financially, keep your pension payments from your super pension to the minimum. This will help with longevity of your funds, meaning you will be provided with that income for longer, hopefully your life expectancy.

11. Mortgage assets

Unfortunately often people buy property investments without asking for the advice before the purchase happens. A common situation I see is buying an investment property with the family home being the security for that purchase.

Let’s check this scenario: George and Mia bought an investment property for $400,000 with their own home being a securing for the loan of $400,000.

They also have $200,000 each in super funds.
After 5 years they want to apply for Age Pension. At that time the investment property is valued $500,000 and their supers $250,000 each. The loan is $350,000
Centrelink will calculate the total of their supers of $500,000 plus $500,000, which means their total assets now amount to $1M, which is above the Assets Test allowance, therefore to their horror, they find out that are not eligible for Age Pension.

If the loan is against the investment property, then Centrelink calculates the net value of the property, after deducting the loan amount outstanding, which in our example is $150,000 plus $500,000 in super funds.

In this improved scenario, they are eligible for Age Pension of a combined income of $18,814.
So before you jump into buying any investment property, you really need to get advice not only how to structure your loans, savings and assets for tax benefit, but also for your retirement in the future. This is all about long-term planning, that’s where the real benefits is.

12. Shortage of income

If you are struggling with your daily expenses and you own your family home, you have several choices:

–  downsizing, but please get advice to ensure your Age Pension does not reduce
–  utilising a reverse mortgage – could work as a solution for some, but not others, so please get advice.
– Keeping your mortgage open, this is a strategy some people use, Just to keep the home loan facility open, in case you are short on funds.

There is some logic behind it, as this is an easy way to quickly get come extra funds and withdraw from your home equity. It is pretty unlikely the same bank would provide you with a loan once you retired, so by not closing down the loan facility, you don’t have to make any loan application, but rather just withdraw what is available.

But easy is not always the best option, so get advice before you start withdrawing your money.
–  Home Equity Access Scheme, this will provide you with an ongoing top up of your income. Interest rates are pretty low, similar to the open market lending of 3.95% and you are not required to make any repayments. The scheme is also available to self-funded retirees, although I cannot think of the reason why a self-funded retiree would apply for this scheme.

Other strategies might assist to have access to funds and maybe even to part Age Pension, which I think is worth exploring.

The smartest thing to do is to get advice in terms of comparison between those 4 options, so you can decide based on facts and the financial outcomes of each scenario, before committing to any of those costly transactions.

13. Family trusts

Family trusts can create a real nightmare when applying to Centrelink for Age Pension. These days ATO and Centrelink share all their data, so it is more likely than not, Centrelink will know about your involvement in a Family Trust.

You may not be receiving any income from the trust, your role might be as appointer, or a trustee.  You might be very surprised to learn that those trust assets might be included in your Assets Test and your Age Pension benefit could be reduced or cancelled altogether.

Parents often set up such trusts for their troubled or disabled child. The idea is great, but might be detrimental to your retirement plans. This is a very complex area, and the best result is always to receive an advice, before you start setting up those complex structures.  A good advice may pay you big dividends.

I hope you found my check list of help. I realise some points may not apply to you, but others could be a very good reminder what to do or what not to do.

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“Retirement is a Journey not a Destination, so be well prepared for the Ride”

Katherine Isbrandt

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement