Investment strategies for retirement require at least a little fine tuning since the recent announcement of the 2014 Federal Budget. Here is some financial food for thought.
The 2014 Federal Budget delivered by Treasurer Joe Hockey had some initiatives that could impact on your retirement planning. Despite a lot of media coverage in the lead up to this year’s Budget, many are still digesting its potential effects on their finances.
Most of the changes are proposed and still to be legislated, so before the ideas become reality it could be a very good idea to consider the possible shape of the new regulatory landscape and how it may affect your individual retirement strategy. In some ways the greatest impact to retirement finances may come from the less discussed and least measurable changes.
For example, the Commonwealth Seniors Health Card (CSHC) is currently available to those of age pension age but who do not qualify for the age pension. But soon the means test for the card will include tax free superannuation income in the assessment and as a result, many self-funded retirees will miss out on discounts on prescription medicines and other concessions. For those who are not in good health, this could create a substantial financial burden.
Holders of the CSHC will also cease to receive the Seniors Supplement, potentially worth over $1,300 annually to a couple, after June 2014.
The bigger changes relating to retirement strategies will likely be caused by the lifting of the age pension age to 70, for anybody born on or after January 1, 1966. This adds a potential five-year gap of self-funding, or more if retirement is planned for before the age of 65.
To fund this gap at the equivalent of the current maximum age pension, individuals will require $96,432 and couples around $72,689 each, assuming inflation of 3% annually and investment return of 7% per annum.
Superannuation itself is changing again, with an interesting new allowance for the withdrawal of excess, non-concessional contributions made from July 1, 2013. Those who inadvertently exceed their non-concessional cap now have a chance to bring the extra funds back out of super, rather than being taxed at the top marginal rate on the amount.
The Superannuation Guarantee rate, or the amount an employer is legally obliged to pay to employees, has risen from 9.25% to 9.5% from July 1, 2014. Previously that rate was planned to continue to increase to 12% over the coming years, but it will instead stay at 9.5% until June 2018. It will then begin increasing by 0.5% annually until it hits 12% on July 1, 2022.
There is a lot more to consider with your adviser around changes, and timings of those changes, as a result of the Federal Budget. Other discussion points include potentially complicated alterations to deeming of investment income and to indexing of various means testing policies. The reduced Medicare Benefits Schedule could also lead to greater expense for patients.
The 2014 Budget also offers some small opportunities here and there. The paid parental leave scheme, for instance, provides mothers up to 26 weeks of salary (up to $50,000 over the period). This will remove some of the lumpiness and unpredictability that comes with retirement planning during an interrupted career.
And for what it is worth, businesses are now being encouraged to employ those over 50. The offer of assistance for the business is up to $10,000, paid over 24 months by the government, for each over-50-year-old the company employs, as long as the new employee has been on income support for six months or more.
Finally, depending on your life stage, several benefits of the current regulatory environment can be grandfathered into the next. So speak to your financial adviser about how to best adjust your strategy for the greatest possible retirement result.
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This web page may contain general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.