In Melbourne, we are fortunate to have the age pension as an option for all Australian retirees. But with the federal government steering older Australians away from government support, some people are not sure of how they can afford their retirement, that’s why retirement planning is essential. In recent times, the government has required most employers and employees to subscribe to the superannuation scheme in Australia. However, it is not mandatory to use superannuation income. For the age pension and superannuation, each source of income has benefits and disadvantages.
When you subscribe to the age pension, the government will provide an allowance every fortnight to help pay your living expenses. To be eligible for the age pension, you have to meet the age requirement. You also need to have lived in Australia for over 10 years.
If you meet the minimum eligibility criteria, the government will assess your assets and current income – including those based overseas. Your home of current residence is not included with your assets. Your income will include amounts from employment, pensions or annuities and money earned from investments and salary sacrifices. If your income exceeds a particular limit, your pension payments will be reduced.
The superannuation system encourages Australians to fund their own retirement through making contributions to superfunds throughout their working life. Employers are required to make minimal contributions to superannuation on behalf of their employees. However some people make additional contributions to their superannuation fund, as super is taxed less than other investments. In some aspects, it is like a term deposit, where money is locked away until you are at least 55 years old.
When you are able to access your super, there are a few payment options available. First, you can draw a lump sum payment. With the money, you can put it in a high-interest bearing account or reinvest it. Secondly, you can create a regular income out of your accumulated funds. Your money stays within the superannuation system and is transferred from an accumulation fund to an account-based pension. The benefits of an account-based pension are that you have the flexibility to vary the amount you receive year to year and that this income source is tax-free. Your third option to access your super money is to buy an annuity from your super fund. It’s a secure way to have a stable income for the rest of your life or a defined period – regardless of market performance. However, annuities tend to provide less flexibility and payment amounts than account-based pensions.
While the age pension is a stable and supportive system, it offers little flexibility and only provides a bare minimum for living. On the other hand, superannuation provides more options that can adapt to changing personal and financial goals, but requires a lot of planning and guidance.
It is important to seek financial advice and guidance for your retirement planning to ensure you can meet your obligations and goals in the future. There are a number of reputable financial service providers in Melbourne with a wealth of knowledge about the age pension, superannuation as well as self-managed super funds. Explore you options retirement options today.