Retirement – Centrelink


Retirement Work out which of these five retiree types you are to guide your spending after you stop working, says Joanna Mather.

Longevity risk – or the prospect that you will live longer than you anticipate and therefore run out of retirement savings – keeps many people up at night.

Take actuary David Orford, the managing director of annuities business Optimum Pensions, whose mother died of a heart attack at 72. Her father also died of a heart attack at 72. Orford, 62, has had a heart bypass operation and takes cholesterol medication and reckons it is possible he will live longer than his father who died at 93.

Then again, 47 per cent of people die before they reach life expectancy, and he could get hit by a bus tomorrow.

‘‘People often say variability of investment returns is the biggest risk postretirement, but I think it’s 100 per cent longevity risk,’’ Orford says. ‘‘That’s apart from losing your spouse, which has no effect on women but results in reduction of life expectancy for men.’’

The point is not to be flippant about Orford’s mortality but to acknowledge that life expectancy projections are just that – best guesses. As such, the biggest financial question many people face is how to budget for an enjoyable retirement while minimising the risk of outliving their savings.

The retirement income of most Australians comes from the government-funded means-tested age pension, an account-based pension (an amount withdrawn regularly from superannuation), or a combination of both.

How much to spend

Even before they get to longevity risk, many retirees struggle with working out how much to spend.

‘‘Clients ask three things,’’ says David Reed, who runs Sydney-based The Retirement Advice Centre. ‘‘‘When can I retire?’ ‘How much can I spend each week?’ ‘How long is it going to last?’ And the thing that answers all of those questions is their withdrawal rate.’’

There are some free guides. The federal government’s Moneysmart website offers a retirement income calculator, as do many superannuation funds.

The Association of Superannuation Funds of Australia developed a ‘‘retirement standard’’ in 2014 and updates it regularly to track changes in cost of living.

The current ASFA standard for a ‘‘comfortable’’ lifestyle is $71,723 income a year for couples and $46,620 for singles. The lump sum required for a ‘‘comfortable’’ lifestyle for a couple is $690,000 and $595,000 for a single. A ‘‘comfortable’’ lifestyle includes the occasional restaurant meal, an annual domestic trip and an international trip once every seven years.

The annual income guide for a ‘‘modest’’ lifestyle is $50,981.27 for couples and $32,417.48 for singles. The lump sum required for a ‘‘modest’’ lifestyle is $100,000 for both a couple and a single.

‘‘There tends to be a level of conservatism built into the way many people spend their money in retirement,’’ says Jonathan Scholes, who specialises in wealth management at financial advisory and accounting business Findex. ‘‘As financial planners, we are often talking to clients about taking that holiday or buying that new car rather than necessarily saving for when they are 95.’’

‘‘In many instances, our clients are sacrificing their own personal standard of living to leave more to the children and their beneficiaries. But we still do have individuals who spend more money than perhaps their capital allows.’’

For a fee, financial planners will use life expectancy data, actuarial insights and computer modelling to devise suggestions for how much clients can confidently spend each year.

With that in mind, Smart Investor asked Challenger’s head of technical services, Andrew Lowe, to model five typical retiree types to see how much they might be able to draw from their savings each year without running out of money before they hit life expectancy.

The five retiree scenarios are: age pensioner; part age pensioner couple; self-funded couple soon to become part age pensioners; self-funded couple; and self-funded single. The modelling uses Challenger’s retirement illustrator tool for financial advisers, based on assets and super balances at age 67.

Different scenarios

Each scenario is detailed on the next page, while the graphic above shows the annual sum each retiree type might be able to spend based on their superannuation, other savings, age pension eligibility and life expectancy.

The table on the next page shows the ‘‘safe spend’’ for balances from $200,000 to $3.8 million.

For each scenario, Lowe provides an amount at which the retiree/s can have varying levels of confidence – ranging from 50 per cent to 80 per cent – that they won’t outlive their savings.

Given the federal government wants superannuation funds to ensure customers have access to financial products that guarantee lifetime income and Challenger is in the business of selling annuities, Lowe has included the purchase of a CPI-linked lifetime annuity in two of the five scenarios.

Annuities provide guaranteed income over a set period in exchange for an upfront cost – Lowe’s scenarios involve using 20 per cent of super savings to buy an annuity.

All superannuation in the scenarios is assumed to be invested 50 per cent in growth assets such as shares and 50 per cent in defensive assets such as bonds.

All modelling is to life expectancy, which is the age(s) to which an average Australian of a given age can expect to survive (or at least one of the people in a couple is expected to survive), based on Australian life tables 2015-17.

‘‘In many ways the key is confidence,’’ Lowe says. ‘‘When retirees have the confidence that they will have money available later, they can spend more earlier in their retirement. Current behaviour, with the majority drawing only the minimum, suggests that retirees do not have that confidence to spend.’’

The mandated drawdown rate from super in retirement ranges from 5 per cent to 9 per cent according to age, and many people use the minimum rate as a rule of thumb for what they should spend.

For many retirees, this results in unnecessary penny-pinching, according to the federal Labor government, which has called for submissions to a Treasury review looking at how to give retirees more confidence to spend their retirement savings, either via new products or better advice.

‘‘The problem is most retirees do not have access to the appropriate products to help them maximise their super over their lifetime,’’ Assistant Treasurer Stephen Jones said when he launched the review in December. ‘‘In fact, 84 per cent of retirement savings are held in account-based or allocated pensions, with only 3.5 per cent held in annuities. Unlike account-based pensions, annuities offer the option of receiving regular payments for life, regardless of how long a person lives.’’

Brisbane couple Glenn and Annette Mitchell purchased an annuity when they retired in 2014. They ran a business manufacturing sheepskin seat covers for 34 years and felt capable of managing their retirement finances.

‘‘That was a mistake,’’ says Glenn, a father of two and grandfather of four. ‘‘We did not know the rules that governed Centrelink benefits and the impacts of investments on pension entitlements.

‘‘The biggest issue for us was the income from our rental property investment was not sufficient to sustain our outgoing expenses throughout retirement, so we needed an alternative, assured income.’’

Glenn says that the annuity lifted the couple’s annual income from roughly $44,000 a year to $89,000.

Some would argue the government-funded, means-tested age pension paid by Centrelink is the ultimate longevity hedge. If you run out of money, then you’ll qualify.

The Treasury discussion paper says retirees tend to worry about the upfront cost of annuities, don’t like the idea that large sums of money are ‘‘locked away’’ when health or aged care emergencies might arise, and are worried about ‘‘wasting capital’’ if they die at an early age.

Superannuation funds and insurance providers are working on ways to make annuities more attractive, such as allowing the withdrawal of capital in an emergency.

The government is trying to figure out ways it could make the products cheaper by taking on some of the insurance risk.

Retiree types

Age pensioner | The first retiree type is a single woman who is renting and eligible for the full age pension. She has $300,000 in super, $30,000 in cash and term deposits and $10,000 worth of personal assets (such as cars and jewellery). She has a life expectancy of 90.

Lowe’s modelling shows she can draw $45,400 a year (indexed with inflation each year) with 80 per cent confidence she can maintain that level of annual spending to her life expectancy. If her retirement savings run out, she will need to rely on the age pension, currently $28,514 a year for a single ($42,998 for couples). ‘‘If she were to ask me how much she could spend in retirement, I would take her maximum rate of age pension – which is $28,500 – and combine it with [an account-based pension using] her $300,000 super to find she can buy a very confident additional level of income,’’ Lowe says. ‘‘She can have a 50 per cent degree of confidence that she could spend $48,600 a year and a 90 per cent degree of confidence at $43,500 a year.’’

Part-pensioner couple | The home-owning couple in this scenario has $650,000 in combined super, $50,000 in cash and deposits and $20,000 of personal assets. Their life expectancy is 94.

If they draw a combined income of $70,100 a year, they have an 80 per cent chance of having sufficient funds to maintain that budget to age 94.

Initially, less than one-third of their income comes from the age pension and two-thirds from super and private savings. But over time the age pension increases to represent more than half of their income.

Self-funded couple soon to become part-pensioners | As homeowners with $1 million in super, this couple just misses out on qualifying for the age pension when they retire at 67, although they will become eligible in a couple of years.

They can draw a combined income of $78,200 a year with 80 per cent confidence they will not outlive their savings.

If the couple allocates 20 per cent of their retirement savings to a CPI-linked lifetime annuity (at a cost of $200,000), their confidence level rises to 89 per cent.

The annuity would guarantee lifetime income of an extra $10,500 a year.

Self-funded retiree couple | These homeowners have $1.6 million in combined super, $100,000 in cash and term deposits and $50,000 of personal assets.

They can draw a combined income of more than $97,000 a year with 80 per cent confidence that they will not outlive their savings.

If they were comfortable with a 50 per cent degree of certainty, they could dial up their annual drawdown to $110,000 a year. They are likely to become eligible for a part-pension later in life.

If they invested 20 per cent of their super savings in a lifetime annuity ($320,000), they would get more than $16,500 a year of guaranteed, CPI-linked income for as long as they live and their account-based pension would last longer.

Self-funded single | This single homeowner has $1.9 million in super, which puts her at the upper end of what is allowed in tax-free retirement phase super accounts. She is also likely to be eligible for a part age pension later in life.

With an 80 per cent level of confidence, she is unlikely to run out of money spending $111,500 a year. For the first decade or so of retirement, her income is derived from an account-based pension and other income (interest on savings) until she becomes eligible for a part age pension at 90.SI

HOW TO NOT OUTLIVE YOUR SUPER2024-01-29T16:59:20+11:00

Reached midlife? Rewrite rules of life’s journey

A growing number of us will live to 100, but there is no rule book for the second half of the journey. The Baby Boomers wrote the first chapters: get a good education, secure a job, build a career, start a family, educate your children. But then what?

The 40-, 50- and 60-somethings of today are looking forward to decades of good health ahead, with greater financial security than ever before thanks to 31 years of compulsory superannuation and rocketing property values.

They have an insatiable will to travel the world and a passion for lifestyle, leisure and the ‘‘good times’’ that no older generation could have afforded. They want to get to the good bits of life before they retire by enjoying their 50s and 60s as their kids become more independent.

That means using their hard-earned self-confidence to find new challenges that align more closely with their passions than their obligations, even if it means a downward shift in salary.

In the second half of life, some things that may not have seemed important or attainable move within reach. Like seeing the world, furthering your education or teaching others, really participating in family now you have the joyful years of grandparenting ahead, and being a more active part of the community.

If you’ve hit midlife, know your superannuation and investments are in place, and you’re confident that the way you have them invested will allow them to compound in the years before you retire, it takes the pressure off. It allows you to be curious about what work might feel more purposeful and what activities you could pursue that might give your life a greater sense of meaning.

For some, that means shifting from an executive role to a portfolio of nonexecutive and advisory roles centred around a core area of interest. For others, it is starting a business or stepping into a different field altogether. It will appeal to some to use their skills in a way that might leave a legacy by working for not-for-profits, charities or social impact ventures. Leaving a meaningful legacy becomes more important in the second half of life, and when I say legacy, I don’t mean leaving your kids an inheritance.

If we’ve got a shot at living to 100, then we need to start planning for the second half of life much earlier. Traditional retirement planning, retirement benchmarks and the software of major financial planning groups currently plans to about 88 years.

So the new paradigm is to understand your longevity, and get some professional advice to craft a robust financial plan that leans into it. Start saving early, diversify your investments, and give them plenty of time to compound.

Plan for pre-retirement | Notice the new phase of life that is emerging before retirement and the slow transition that the journey into retirement can become – embrace it. Set goals for these prime-time years and go out there and live well while you’re young-ish. Take a sabbatical, or a gap year, buy that caravan and take time to spend with your partner, kids and young grandkids. Don’t wish away your best years.

Keep learning | Too many people reach midlife and say to themselves ‘‘I’m too old to go back to university’’ or ‘‘I don’t have time to benefit from courses and a change in career direction.’’ Those are the old rules.

Challenge yourself to keep expanding your mind, your interests and continued education that will drive your fulfilment. You might just have decades to use all that knowledge and experience yet. You might have a whole third-act career ahead.

Portfolio life | Think about how you can reshape your skills and leverage your experience to land you in more flexible, enjoyable work and charitable roles. Portfolio careers are the ideal option for those who want choice, flexibility and excitement in their second half of life.

Your portfolio could be made up of a mix of paid and unpaid roles, and temporary and long-term tasks.

Build on your capabilities, and build up your portfolio so you can work on the things you choose for longer than previous generations, and reap the benefits, financially and socially.

Make your health your wealth Living longer requires a strong focus on health. Regular exercise, a balanced diet, and proactive preventive healthcare should become integral parts of everyone’s daily life. Invest time and effort in maintaining your physical, cognitive and mental health, with deeper self-awareness of when you’re letting things slip.

Embrace community | The longest, happiest lives in the world are lived in villages and towns where there is a very close-knit sense of community. So take the time to nurture your relationships and build lasting bonds with family, friends and the community you live in.

Invest in meaningful connections, and build a network of people around you that supports and enriches your life. Social isolation is one of the biggest issues among today’s older generations.

Lean into change | The only constant in life in the 21st century is change, and adapting to it gracefully is vital. Cultivate resilience, be open to new experiences, and welcome change as an opportunity for growth and discovery. Gone are the days when we could age bitterly. Consider the concept of ageing curiously instead. It’s much more appealing.SI

Bec Wilson is the author of How to Have an Epic Retirement and the host of the new podcast, Prime Time with Bec Wilson.

Reached midlife? Rewrite rules of life’s journey2023-10-27T09:24:10+11:00

RBA change is coming, like it or not

More people, more input, more cooks in the kitchen. That’s ultimately the price the Reserve Bank of Australia will pay for a couple of years of bad or miscalculated calls, made in response to the pandemic.

Ironically, the review was conceived in the pre-COVID days when the RBA was criticised because inflation was running below its 2 to 3 per cent target range. All the attention is on what has happened since.

When money was flooding into the financial system and the economy, it is now clear the RBA board was too slow to apply the handbrake. The result is the highest level of inflation since the 1990s and an unprecedented 10 straight rate rises that were never going to be popular with ordinary Australians or politicians. No one seems to care that the unemployment rate is around its lowest level in nearly 50 years.

Right or wrong RBA governor Philip Lowe wears the blame. He will be all over the newspapers and nightly television news bulletins, even though markets (equities, bonds, currency) barely blinked. Mr Market saw the review coming, and now says the changes are some way off.

From the market’s perspective, next month’s budget is more material. Treasurer Jim Chalmers needs to set up the books for the next few years, which means finding more money. The economy is finely poised: it would be tempting to throw money around to ease cost of living pressures, although money’s tight and the inflation doesn’t need stoking.

In the meantime, old-head RBA watchers said it was a significant day. The fact that the central bank, which has such a great impact on Australians’ daily life, was subject to such scrutiny made it a historic day.

Lowe and the RBA will be hauled over the coals for what happened a few years ago, even though it was just as much the government stoking the fire that continues to burn today. The critics argue he should be accountable for the combination of low rates, forward guidance, yield curve control, quantitative easing and the term funding facility, which combined to whipsaw the economy and may yet cause a recession.

Of course, Lowe’s monetary policy is just one tool.

Once the commotion passes, we should all still be worried about the rising cost of rent and energy and how both can be addressed. The review doesn’t change that.

The review prompted plenty of thinking about the RBA, its corporate governance, board composition and decision-making. It recognised that in more normal times, the RBA had done well to keep inflation around the midpoint of its 2 to 3 per cent range for the past 30 years.

However, it is the past few years, a wartime for central bankers when no one escaped with a goldilocks path out the other side, that will now shape the direction of Australia’s monetary policy system.

What’s the answer to it all? Get more people involved in the decision-making. A specialist monetary policy board, fewer board meetings and more outsiders sitting around the table.

Reading between the lines, there seemed to be concern about how insular the RBA either is, or has become. Lowe is a perfect example; he’s got a great temperament for the governor’s job, is clearly smart and well regarded by colleagues and peers globally, but he is an RBA lifer and ingrained in current-day practice.

The creation of a new nine-person Monetary Policy Board, widely tipped by pundits, is about getting more rigorous thinking into rates decisions.

The nine people would include the RBA governor, deputy governor, Treasury secretary and six outsiders. The review recommends that ‘‘external members should be able to make a significant contribution to monetary policy setting through expertise in areas such as open economy macroeconomics, the financial system, labour markets, or the supply side of the economy, and in the context of decision-making under uncertainty’’.

So, this specific rate-setting board should mean more challenge and debate to the house view, which appears to have become more entrenched. At the same time the review calls for RBA’s operatives to spend more time with board members, making it a bit of an each-way bet but a good use of what is a big and expensive research team. (The need to spare a day a week or so in the RBA’s offices surely tilts the external board positions towards academics.)

The undertones were that the board wasn’t functioning properly, either because it didn’t have the right people or the right information. Lowe defended his board at a press conference yesterday, saying discussion around the boardroom table was robust and not dominated by himself.

It’s all well and good to have more people in the room on rates decision day, but it does not mean the board will function more efficiently or come to better decisions.

But big boards do not necessarily mean better outcomes. Corporate Australia is littered with poor boards and ‘‘jobs for the directors club’’ type attitudes that ruin what can be otherwise good businesses.

Often the bigger the board, the more constipated the decision-making process. The other scourge is chairmen roping in old mates and colleagues from other boards.

Ultimately, whether a separate and bigger Monetary Policy Board works will depend on who is on it. It was a logical and welcomed decision to create the separate board, and clear rate-setters of the governance-type matters that tend to dominate board meetings.

The review recommended a transparent appointment process, starting with advertised expressions of interest. External members would be appointed for five years, and up to another year depending on the circumstances.

There would also be fewer board meetings; eight not 11. And the governor would have to front the press following each meeting to explain the board’s decision, with more emphasis on the expected path of inflation and the labour market. That shouldn’t prove too onerous. External board members would also be required to make one public address each year.

The idea of more communication is conceptually good, although post-meeting press conferences can be a double-edged sword. We’ve seen Federal Reserve chairman Jay Powell mix his messages in a live setting, which can leave the market with more questions than answers.

Fewer meetings mean more time between rates decisions and arguably more punting and reading the crystal ball for fixed income investors. There could be more focus on monthly/quarterly economic data, to fill the information void between meetings.

Market economists liked that there could be more briefings, as it should (in theory) help them with their forecasts. They also probably like that there would be an unattributed published vote after each policy decision.

Other parts of the review said RBA should work more closely with the government/ Treasury, although it remains to be seen how. The review said fiscal and monetary policy should be set separately, however the RBA and Treasury needed to ‘‘have a good understanding of the intentions of the other and informs better policy choices’’. The two institutions are already close, but the review said their co-operation should include increased information sharing on risks, scenarios and policy constraints, and some joint scenario analysis.

Lowe was gracious at his press conference, although it was clear he did not love all the recommendations. For example, he bristled at any notion rates decisions were his alone and thinks it’s important to be careful with the number of public messages out of the RBA to ensure consistency and stability.

Lowe said he would leave his reappointment to the RBA top job in the Treasurer’s hands. He said he would be happy to go around for another term if asked. If not, he said he would find another way to contribute to society.

The fact that the RBA was subject to a 294-page review and there were 51 recommendations suggests change is on the cards.

Next week’s CPI reading could be material to the situation. Economists are tipping a number just shy of 7 per cent.

For all the focus on Lowe, in the near term the real attention should be on Chalmers and the budget. That’s the real showstopper for the economy. 

RBA change is coming, like it or not2023-04-24T16:53:10+10:00

Financial Planning Message – December 2022

As 2022 draws to a close we are reminded of the recent period of intense volatility in capital markets and the reality that a global recession is likely next year.


Markets are pricing in a lower probability of a recession in Australia.


This in turn will depress corporate earnings and valuations across all asset classes and significantly increase default rates among high-risk borrowers.


The correction to valuations is likely to be more severe during this economic cycle due to valuations starting from elevated levels compared to previous corrections.


We are also yet to experience a high number of fixed loans move from fixed interest rates of sub 2% to levels of 5%+ prevailing rates, something in the order of $500bn are due to mature in mid to late 2023.


This will no doubt impact the already depressed property market in Australia.


All the major banks and APRA are keeping a close eye on this development as we progress into 2023.


As inflationary pressures persist ( highest in 40 years ), geopolitical tensions and tight labour supply, the  central banks are forced to aggressively press on with higher interest rates and keep for much longer.


The RBA has so far moved the cash rate from .1% in March 2022 to now 3.1%, markets are now pricing in another two .25% increases in early 2023 before a potential pause to evaluate the impact on inflation.


The Federal Reserve was pricing in a rate increase of just 1% in December 2021, it is remarkable that their view now is that it is likely to peak at approximately 5.25%.


Consequently, 2023 is poised to exert added stress to highly leveraged borrowers, specifically those that have acquired property / equities in 2021 / 2022, are now in nil or negative equity positions.


It is worth noting that during this business cycle, we have had an explosion of companies that have become addicted to cheap debt, on the other hand, these same companies are not generating sufficient cashflow to support increased interest payments.


Clearly, there will be consolidation particularly in property related businesses in 2023.


There are no doubt significant headwinds for Australian households and the economy in general as we enter 2023.


Accordingly, extreme caution and sound strategies need to be implemented for the year ahead, including but not limited to :-

  • Be clear on what and who matters given the many conflicting sources of information and ‘investment opportunities’ across the media.
  • Understand your portfolio and position appropriately taking into account your forward plans and risk / return / management costs.
  • Review cashflows and eliminate unnecessary lifestyle costs in light of higher interest rates in 2023.
  • Let’s not forget managing your tax position, this is always relevant be it during your working life, in retirement ( with respect to investments) or as part of your estate plan.
  • Focus on what can be controlled / influenced as opposed to factors over which we have no control or influence.
  • Make incremental ‘dollar cost savings’ as opposed to taking a significant position when investing.
  • Diversification and history are our best friends, reflect and actively rebalance asset allocations.
  • Consider Dividend Reinvestment Plan ( DRP) in light of the attractive valuations.
  • Confirm borrowing / refinancing options well before due dates and explore potential savings across relevant lenders – competition appears to be intensifying across the major lenders.
  • Insurance is always important, however potentially critical during extreme business cycles as are likely to unfold in 2023. It is not desirable to execute forced sales at depressed values.


In closing, we would like to take this opportunity and thank you for placing trust in AMCO since inception 26 years ago and making our Integrated Wealth Management practice what it is today.


We are aware of the challenges you are facing during these uncertain times and are there to advise and navigate all matters with professional care and promptness.


It is vital that fundamental mistakes are prevented during these critical periods, hence the need for sound advice.


From the team at AMCO, we wish you and your loved ones good health, peace of mind and prosperity in the year ahead.


Merry Christmas.



Danny D. Mazevski 

Chartered Tax & Financial Adviser


Financial Planning Message – December 20222022-12-22T08:01:23+11:00

New research shows you don’t need $1m in super to retire

New analysis challenges the widely touted view that couples need $1 million in super to enjoy a comfortable retirement lifestyle, with Choice spin-off Super Consumers Australia saying retirees with low spending patterns can potentially bow out of the workforce with $88,000 in super, without their living conditions deteriorating.

The new research analysed pre-retiree and current retiree spending patterns to determine what it takes to live a ‘‘low’’ spending, ‘‘medium’’ spending and ‘‘high’’ spending lifestyle in retirement.

A single pre-retiree aged 55-59 who plans to spend around $55,000 a year in retirement is considered to have a ‘‘high’’ level of spending, and as such needs to save $745,000 by the time they’re 65, the analysis found, based on this retiree owning their home, or not paying rent or a mortgage.

But if they’re planning a lifestyle with a medium annual spend of $44,000, they’ll need $301,000 and if they’re planning ‘‘low’’ spending of $34,000 a year, they’ll need $88,000.

All cohorts are assumed to also receive the age pension, which is expected to make up 91 per cent of income for retirees within the low-spending cohort.

Meanwhile, single retirees aged 65-69 with medium- to high-level spending patterns require between $258,000 and $743,000 by the age of 65.

Couples aiming for similar lifestyles will require between $352,000 and $1.02 million in savings, the research found. Single retirees planning a more modest annual spending need $73,000 by the time they’re 65, while couples need $95,000.

Super Consumers Australia suggested its medium-spending target of $258,000 in savings by retirement would provide a single person a comfortable retirement. However, that figure is at odds with ASFA’s Retirement Standard, which suggests a single person will need $545,000 to achieve a comfortable retirement.

‘‘Having credible targets, based on actual spending, means people can confidently spend and get on with enjoying their retirement,’’ said Super Consumers Australia director Xavier O’Halloran.

The high, medium and low savings targets are based on what people tend to spend in retirement, and include a ‘‘buffer’’ to provide confidence that their savings can weather market turmoil and are based on growth asset allocation assumptions of a 60/40 split and a mean one-year nominal net return of 5.60 per cent.

Mr O’Halloran took aim at the common belief that retirees need $1 million in superannuation.

Noting that couples with high spending patterns will need around $1 million to maintain their standards in retirement, he added that the message that all retirees will generally need $1 million to retire is ‘‘actually quite harmful’’.

‘‘That can lead to over-saving, it can lead to them making sacrifices during their working life that they don’t need to make, if they just want to maintain their standard of living.

‘‘It also sees some people in that higher bracket pass away with a significant amount of savings still left over.’’

New research shows you don’t need $1m in super to retire2022-07-22T15:54:08+10:00

Small business pays the cost of rising wages

Average pay rates among small businesses have grown by more than 4 per cent this year off the back of the tightest labour market in decades, according to new research.

Data on more than 130,000 small to medium businesses using technology software firm Employment Hero shows the average hourly rate of 1.75 million employees increased 1.4 per cent between May and June, and 4.3 per cent since January.

The company’s inaugural SME index suggests labour shortages in low-paid jobs such as hospitality have started to bite.

Employment Hero chief executive Ben Thompson said changes in average rates could be influenced by lack of staff as much as wage growth.

‘‘We’ve seen a lot of change in industry engagement – people moving from hospitality and retail into knowledge work – and if that means we’ve seen some senior roles with high salaries terminated through resignation and moving from one sector to another, then that could definitely affect the average rate of pay,’’ Mr Thompson said.

‘‘For example, in healthcare if you saw a lot of highly experienced mature-age nursing staff resigning due to COVID burnout that could lead to a decrease in the average wage.’’

The report found retail, hospitality and tourism experienced an increase in average hourly rates of 4.7 per cent from May to June.

However, healthcare suffered a decrease in its average rate of 4.2 per cent. Agriculture, mining and energy experienced the biggest fall, 11.6 per cent.

Overall, the Employment Hero report found medium-sized firms, which also experienced the biggest increase in staff, were driving the most recent surge in average hourly rates.

Small businesses (fewer than 20 employees) and large businesses (more than 200) had their average hourly wage growth marginally decline.

Asked how they would deal with this year’s minimum wage increase of up to 5.2 per cent, about 24 per cent of 500 respondents said they would ‘‘have to review prices’’ and 16 per cent said they would need to work more hours.

About 11 per cent said they would have to let staff go and 10 per cent planned to outsource work locally. About 7 per cent said they would seek to identify cost savings outside of pricing and staffing changes.

The report follows an analysis by JP Morgan economist Jack Stinson last week that suggested wage growth was still tepid because vacancies were concentrated in industries such as hospitality that also had the lowest margins.

‘‘Such firms are less willing to bid wages up to levels above marginal product,’’ Mr Stinson’s analysis said.

‘‘The consistently high level of unfilled vacancies should then be read as a partial signal that firms cannot fill positions at any cost, explaining some of the disconnect between very low unemployment and middling wage growth.’’

Whitehaven Coal chief executive Paul Flynn told The Australian Financial Review his ASX-listed company had been relying on paying retention bonuses ‘‘on a quarterly basis, just to make sure people stay put because the market is very, very tight’’. ‘‘All the miners are running hard and then the government is competing for the same labour with all the infrastructure building they have got going around the country … so the government is contributing to a lot of the inflationary pressure by their own actions here so that is challenging for us,’’ he said.

Small business pays the cost of rising wages2022-07-22T14:58:31+10:00

What It Means For Your Money

There are numerous opportunities for astute investors and consumers to take advantage of. Aleks Vickovich and our expert writers break it down.

As expected, the Morrison government’s pre-election budget had plenty of sweeteners. The 2022-23 budget documents revealed total expenditure of $628.5 billion, of which social security and welfare ($221.7 billion) made up the lion’s share, alongside funding for health ($105.8 billion), education ($44.8 billion), defence ($38.3 billion) and transport and communications ($18.9 billion).

Included was a one-off, $8.6 billion package of short-term handouts described by The Australian Financial Review as a ‘‘shameless voter bribe’’.

Whether the cash splash is effective remains to be seen, with voters to go to the polls in May. But the budget’s short- and long-term measures contain a range of opportunities that astute investors and consumers may seek to take advantage of.

Here’s what you need to know.


Australian women remain on track to earn $2 million less than their male counterparts due to what economists and critics deem a lacklustre, pre-election federal budget.

While it included $9 million in funding to support emerging female entrepreneurs and $58 million in funding for endometriosis, experts warn the measures do not go far enough to promote women’s earnings capacity and – in the case of the paid parental leave changes – may even backfire.

The government’s paid parental leave scheme will now be 20 weeks shared at the couple’s discretion at the minimum wage. Previously, primary carers – who tended to be mothers – were eligible for 18 weeks, while partners were eligible for two weeks. The income test will be changed to a household limit of $350,000 each year rather than the individual test.

‘‘It’s done under the guise of flexibility and allowing more leave sharing between partners,’’ says Grattan Institute CEO Danielle Wood. ‘‘That’s great in the small percentage of households that want to do that, but my theory is it will actually lead to more gendered norms around who cares [for children] in the early years.’’

That policy, coupled with no movement on childcare, confirms Grattan modelling that finds the average mother will earn $2 million less over her lifetime compared to the average father, says Wood.

‘‘[The budget] was a missed opportunity to address some of the disincentives to women’s workforce participation, particularly the higher cost of childcare,’’ she adds.

Industry groups also characterised the budget as lacking for women.

Tax Institute analysis of childcare costs and subsidies found the secondary earner, who is often the mother, faces a steep disincentive to return to full-time paid work.

‘‘If they’re back to a full-time schedule, the secondary earner is only gaining $6 extra for the tenth day of work in a fortnight. By the time they’ve commuted to work and bought a morning coffee, they’re paying to go to work that day,’’ says Tax Institute tax policy and advocacy general manager Scott Treatt.

‘‘The secondary earner in a family can be taxed at an effective rate, including net childcare costs, of more than double the top personal marginal tax rate. This makes returning to work financially impossible for many parents who might otherwise like to.’’



In a measure foreshadowed by the Financial Review in March, the government committed to extending its changes to the superannuation minimum drawdown requirement for another year. ‘‘The government has extended the 50 per cent reduction of the superannuation minimum drawdown requirement for account-based pensions and similar products for a further year to June 30, 2023,’’ the budget documents said.

‘‘The minimum drawdown requirements determine the minimum amount of a pension that a retiree has to draw from their superannuation in order to qualify for tax concessions.’’

Drawdown rates range from 4 per cent to 14 per cent, depending on age. The extension of the halved rate would drop the rate from 7 per cent to 3.5 per cent for someone aged between 80 and 84.

While the budget billed this measure as ‘‘supporting retirees’’, experts say it would really only benefit retirees who have already accumulated substantial wealth outside super.

Peter Burgess, deputy chief executive of the SMSF Association, says the extension allows individuals who have access to outside funds to withdraw less than they would ordinarily have to under the normal policy conditions.

‘‘This means they can retain more in their super pension account – which is tax-free – for longer,’’ he says.

The tax benefits of keeping more money in a super environment are clear, says Lisa Papachristoforos, a partner at accounting firm Hughes O’Dea Corredig.

Wealth held in a super fund in pension mode incurs no tax on income and capital gains, she points out – as opposed to income held in an individual’s name, which is taxed at marginal rates.

But tax advantages are not the only potential benefit. The extension of the minimum drawdown also provides ‘‘continued flexibility’’ on how much retirees need to withdraw to fund standard of living, Papachristoforos adds.

Aside from tax efficiencies, leaving more money in super means more can be invested, generating further returns.

Plus, while the policy may be aimed at retirees, all super fund members may profit from the extension regardless of their age or distance from retirement.

‘‘Super funds are potentially faced with an additional year of lower minimum pension withdrawals paid to their members, allowing them to utilise that forgone withdrawal at a pooled level for investment purposes,’’ Papachristoforos says.

‘‘As such, extending the minimum drawdown rule could positively affect all superannuants, not just those drawing an income stream from their account, and the investment managers of super money will have more funds to invest.’’

Certified financial planner Josh Dalton, of Dalton Financial Planners, agrees there are potential tax minimisation benefits from the extended minimum drawdown policy, as well as the prospect of opening up more money to be invested in markets.

But he warns the measure is not suitable for all retirees. ‘‘Retirees need to estimate their annual expenditure and get a good grasp on how much income they can live on comfortably,’’ he suggests.

‘‘They can then decide to reduce their pension payments in line with their budget estimate and conserve more of their account-based pension capital if it suits.’’


Home buyers

Borrowers planning to apply for the expanded Home Guarantee Scheme should start preparing their applications soon because competition is expected to be fierce, say lenders.

First home-loan applications surged when previous allocations were announced to allow first home buyers and single parents to get into the property market with a deposit of between 2 per cent and 5 per cent without needing to pay for expensive lenders mortgage insurance.

Applicants need to choose a loan from a lender on the scheme’s list that offers the rates, terms and conditions best suited to their needs. It has to be a principal and interest loan. Investors are not eligible.

Prospective borrowers should gain pre-approval for their loan from the lender, which will involve providing identification, age, proof of income, a prior property ownership test, proof of deposit and intention to be an owner-occupier.

Applicants also need to ensure their loan application is within the price caps set for each city. For example, it is capped at $800,000 for Sydney’s central business district and $500,000 for Ballarat in regional Victoria.

The First Home Guarantee, which supports eligible first home buyers to build or purchase a new or existing home with a 5 per cent deposit, has been increased from 10,000 offers to 35,000 a year from July 1. It is capped at $125,000 annual income for individuals and $200,000 for a couple.

There are also 5000 places for the Family Home Guarantee, which enables eligible single parents with dependents to enter or re-enter the housing market with a deposit from 2 per cent.

Mortgage broker Elodie Blamey says single mothers and fathers can earn up to $125,000 – excluding childcare support – to be eligible. ‘‘Unlike the Home Guarantee Scheme, it is not being used nearly enough,’’ she says. Many single parents might not be aware of the scheme and its conditions, or consider themselves eligible.

Merinda Brooks, a single parent with a three-year-old son, says: ‘‘It has absolutely changed my life.’’

The speech pathologist says it would have been challenging to save a 10 per cent deposit. ‘‘I was working really hard but unsure about how I could have otherwise got a deposit together,’’ she adds.

There are also another 10,000 places a year under the Regional Home Guarantee scheme for anyone who has not owned a property for five years, on the condition they purchase a newly built home or build.

Lenders are awaiting additional details from the government before advising potential borrowers.



Government changes to the Pharmaceutical Benefits Scheme safety net thresholds, making medicines more affordable, is good news for many self-funded retirees, according to a leading super specialist.

Lower safety net thresholds for the PBS mean potential savings for retirees, and may create an opportunity for others who have ‘‘grandfathered’’ account-based super pensions.

From July 1, the PBS safety net thresholds will be reduced from $326.40 to $244.80 for concession patients, and from $1542.10 to $1457.10 for general patients, which means fewer scripts before the safety net is reached.

Patients will also reach the safety net sooner with 12 fewer scripts for concession patients and two fewer scripts for general patients.

‘‘This is good news for self-funded retirees who do not hold a Commonwealth Seniors Health Card,’’ says Colin Lewis, head of strategic advice for Fitzpatricks Private Wealth.

‘‘There may also be the opportunity for advisers to consider clients who have an underperforming ‘grandfathered’ account-based pension but feel trapped for fear of losing the card if they move.’’

Many CSHC holders have account-based pensions that are ‘‘grandfathered’’ after the income test rule change on January 1, 2015. Account-based pensions started after that date are deemed under the card’s income test, whereas nothing counted with existing pensions. For this reason, many are reluctant to switch pensions or super funds for fear of losing their CSHC.

‘‘It is a matter of doing the numbers.’’ says Lewis. ‘‘Deemed income from a new pension may not push a cardholder over the CSHC income threshold but, where it does, the cost of losing the card is now reduced with a lower safety net, and the potential return from a new pension may well exceed this cost.’’

The same concern may contribute to some self-funded retirees maintaining self-managed super funds rather than switching to a possibly better-performing and cheaper retail or industry fund.


Small business owners

Improving workforce skills, incentives for employing apprentices and increasing investment in technology and digitisation are among the opportunities. Small and medium businesses with a turnover of up to $50 million are getting an additional 20 per cent deduction for the cost of external training provided to employees.

That means a business will be able to deduct $120 for every $100 spent on a course.

As an example, a business needs to train 10 employees in administrative skills to manage jobs. The company enrols them at a cost of $430 per employee. In addition to the $4300 deduction, the company can claim an additional $860 deduction, being 20 per cent of the expense.

There is also $2.8 billion over five years to increase apprenticeships, including $5000 payments to apprentices over the first two years of their apprenticeships, and $15,000 to qualifying employers paid as 10 per cent for first- and second-year apprentices and 5 per cent for third-year workers.

For example, a business employing an apprentice for $40,000 a year will receive $1250 every six months for two years to help with the cost of training. The company can apply for payments of $4000 in the first and second years, and $2000 in the third year.

The calculations were provided by financial adviser Cameron Harrison.

Businesses are also eligible for another 20 per cent deduction for expenses on digital upgrades, such as cyber security systems or subscriptions to cloud-based services, up to $100,000. Installation has to be completed by June 30, 2023 to be eligible.

‘‘This is a no-brainer,’’ says Greg Travers, a director of William Buck. ‘‘Businesses know they need to digitise, and now the government is giving them an incentive to do it. The benefit is not huge . . . but it helps.’’

Digitisation means more pre-filling, data-matching and data-sharing for the Australian Taxation Office.

‘‘The measures are designed to reduce compliance costs for businesses, but also make it easier for the ATO and other revenue authorities to data-match and share information,’’ Travers says. These measures include using real-time data to calculate PAYG tax instalments.

Sam Pratt, chief executive of Render Networks, which develops broadband connectivity, says while it was a good budget for infrastructure, there needs to be more support for the digital economy to keep it competitive with the US and Europe.

Changes to the taxation of employee share schemes will help smaller companies, particularly technology start-ups, attract and retain skilled workers. Limits on the value of shares an employer can issue to employees has been increased from $5000 to $30,000, which puts it in line with international standards.


Aged care residents

With medication management long regarded as the bane of residential aged care, funding to link care facilities with community pharmacists and onsite pharmacists should bring some comfort to residents and nurses.

The delivery of wrong and/or excessive medication has long been an issue waiting to be addressed.

However, at the heart of this and other positive reforms flagged for the aged care sector in the federal budget lies a major problem – recruiting and retaining qualified staff.

Notably absent from the spendathon was any mention of the wage increase for existing or future aged care workers that is so desperately needed to deliver the existing services, let alone promised ones.

Pharmacists are as desperate for the implementation of a workforce plan as the aged care sector, putting a huge question mark over the success of a potentially good idea before it is even rolled out.

The ongoing release of 80,000 home care packages in 2021-2023 – taking the total to about 275,600 people by June next year – is welcome confirmation of intentions to assist older Australians to remain living independently at home.

But the delivery of the packages and other at-home support is also dependent on attracting a suitably skilled workforce to meet the demand.

It is the same for the 8500 new respite services also announced previously as part of an $18.8 billion, five-year reform program following the Royal Commission into Aged Care Quality and Safety.

On that front, the $48.5 million for 15,000 additional aged care training places for new and existing personal care workers, to a total of 48,800 places, is a positive move.

More money for more training is always welcome, says Sean Rooney, chief executive of Leading Age Services Australia and representative of the Australian Aged Care Collaboration. But he says the budget failed to address the key fundamental deficiencies identified in the royal commission – wages and the viability of aged care homes.

Sticking with the commitment to reform the residential aged funding model through the introduction of the Australian National Aged Care Classification Transition Fund, the budget included an additional $34.60 per bed per day.

The proposed residential aged care funding model, scheduled to begin on October 1, is designed to align residential aged care funding to the care needs of each resident.

The starting price is $216.80 a day per resident for standard care – with more for dementia-related care – compared to about $180 a day per resident under the old funding model.

Council on the Ageing chief executive Ian Yates will be looking to see that the additional money is spent on increasing the number of care minutes with residents as intended by the royal commission, which recommended care homes have a target of 200 minutes per resident per day.

Exactly how that will be measured is yet to be worked out. But Yates wants the government to commit to publishing how many minutes of care each residential facility is being funded to deliver, compared to the number of minutes actually delivered, as part of its new star rating system.

With an election on the way, there is still hope for further announcements that will directly benefit older Australians and those who deliver the care they deserve.

Unlike the government, the opposition has centred its budget promises on fixing the aged care workforce with a $2.5 billion pledge for measures, including a wage rise.


Young Australians

Successive budgets chasing the ‘‘grey vote’’ have allowed structural flaws in Australia’s economy to form, with younger generations and economists now calling for bold conversations to help strike out the unwieldy debt bill.

The budget features a projected $78 billion deficit for 2022-23. The deficit is expected to linger for the next 10 years, with gross debt peaking in 2025.

While a deficit isn’t necessarily a problem if the debt brings sustained productivity or lifestyle improvements, Australia’s ability to wind back high levels of spending will be the key issue for younger generations, says the Grattan Institute’s Wood. ‘‘We shouldn’t be so fixated on the deficit per se, especially coming out of COVID-19; it partly reflects that we did need to spend a lot to respond, and that it was appropriate to do so,’’ she says.

‘‘But we should think about the structural budget deficit over time, and that does look a bit concerning.’’

Wood says Australia’s spending appears to be fixed at a higher level after COVID-19, with more money flowing through to defence, aged care and the National Disability Insurance Scheme.

‘‘We haven’t really talked about how we’re going to pay for that over time,’’ she says. ‘‘The risk is if we don’t do anything about that and debt continues to creep up as a share of the economy – that’s the concern that young people, quite rightly, might have.

‘‘It’s that longer-term picture and the lack of clarity around how we’re going to square those numbers.’’

The co-founder of intergenerational fairness advocacy group Think Forward, Sonia Arakkal, agrees government debt is a complex issue, but is concerned that the budget puts older generations’ needs before younger generations’ current and future needs.

‘‘Young people have a sophisticated understanding of the economy – we’re a very highly educated generation . . . we want policymakers to take into account our interests,’’ she says.

‘‘So, if they are accruing debt in our name, it should be debt that is invested in climate change or infrastructure – not pork-barrelling in particular marginal seats or particular states.’’

Faced with baked-in higher spending, an ageing population and a need to decarbonise, Arakkal – who is leading calls for a parliamentary inquiry into intergenerational fairness – is calling for Australia’s political class to engage in more difficult conversations about equality.

‘‘We have a system that is overly reliant on income taxes and doesn’t treat asset taxes in the same way, and we shouldn’t be punishing people for working. We should be looking at taxes that are inefficient, like capital gains tax, or how we tax superannuation,’’ she says.

‘‘We need to be having those conversations to set the younger generation up for success.“

There are two options for tackling the deficit, says Wood.

The first is to find ways to make the economy grow faster, as a faster-growing economy will essentially ‘‘fritter away’’ the debt burden.

‘‘Looking at policies which actually promote productivity and growth is important, so that could be tax reform, reforming cities, and how we do planning and zoning regulation?’’ she says.

Supporting more women to return to the paid workforce after having children is also a key way to uncap economic potential, Wood says, expressing disappointment at the budget’s muted changes in that area.

‘‘Over time, I think taxes will have to rise, even if we do tick some boxes on the growth front,’’ she says.

‘‘It’s inevitable that as government has increased as a share of the economy, that there will have to be an increase in taxes to pay for that. That has to be done carefully. What we shouldn’t do is just rely on income tax to do all the heavy lifting, which is what we’ve done historically.’’



Those earning up to $126,000 will be eligible for an additional one-off $420 that will be paid when their 2022 tax return is lodged. There’s also a one-off cost of living payment of $250 to eligible income support recipients and certain concession cardholders. Fuel excise (a federal tax imposed on each litre of petrol) will be halved, intended to reduce the cost of fuel by 22¢ a litre. In addition, costs of taking a COVID-19 test to attend work are tax deductible from July 1.SI


What It Means For Your Money2023-04-21T14:15:56+10:00