Christmas is a popular time to retire. It makes practical sense to finish at the end of a year, even though July might be better for tax reasons. When is the right time to end a career anyway? Many would say, when they have saved enough money to live comfortably thereafter.
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How do you know if you have saved enough to retire? The best way to be sure is to get professional advice. You may find you will be best to finish up soon due to the new assets test.
Treasurer Morrison has set up an incentive for people to retire with less savings. Under the new age pension assets test people must earn 7.8 per cent income per annum on their savings above a threshold level just to replace the age pensions they lose due to having the extra savings.
As this is extremely difficult many people with more retirement savings have less total income to live on. If people of pension age work longer and save more, they will have to live on less income in retirement, unless they spend their capital.
For example, homeowner couples with investments greater than $380,000 up to $827,000 will have less total income than those with $380,000 of assets. Single retirees with more than $254,000 of savings, up to $550,000, will have less income than those with just $254,000.
Once the threshold is exceeded the age pension falls much more quickly than investment income can rise to replace it. It may even make sense for some people who are under pension age but have more savings than their threshold level to quit work early and spend capital before pension age.
They will then get more pension and more total income after they reach pension age. The age pension is a very important income source when interest rates on bank deposits are so low. There are higher non-bank deposit rates advertised but care should be taken to be sure they are safe.
Annuities also provide guaranteed incomes. They pay a little more interest than bank deposits and in some cases can also help reduce assets test assessments, ensuring more age pension is paid.
The most popular retirement income investments are account based pensions set up with superannuation balances. These can invest in a selection of investments that each retiree feels comfortable with. A regular income is paid at a higher rate than bank deposits.
Rental properties, shares and other non-super investments can also provide retirement income. Careful planning is needed to ensure the income will be enough to live on.
However if people enjoy their work it may be better for their physical and mental health to stay on.