Retiring from full-time work? Can you qualify for Centrelink benefits?

If you are leaving full-time employment, and are over age 55,you might be able to qualify for Newstart Allowance – even if itappears your assets exceed the cut-off limit. Here’s a case study to show why.

Case study – Couple with $550,000

Melissa & James are aged 60 and own their home, and are about to leave their jobs, but both are keen to work part-time.They require an income of $58,000 p.a. (indexed) for the rest of their lives, and they have the following monies:

Superannuation                 $500,000
Cash & term deposits        $50,000
                                        $550,000

In addition, their car and home contents are valued at $20,000.
So, all up, their assessable assets for Centrelink purposes are $570,000.

With no planning:

Melissa & James could take the ‘no planning’ route by withdrawing the superannuation money and investing it into term deposits.

Assuming neither finds part-time work, this would result in their assets being fully assessed by Centrelink and they will therefore not qualify for any Centrelink benefits in their early retirement years.

Further, their savings will not generate their required income, so they will have to top-up their investment income with cash withdrawals ($34,701 in Year One).

Given an earning rate of 4.5% p.a. for term deposits and 2.5% for cash, and income indexation of 3% p.a., the couple would run out of money just 16 years after they retire.This is well short of their needs, as their life expectancies are 22 years for James and 26 for Melissa, as shown in Chart 1.

With Australian Unity:

A typical adviser would suggest Melissa & James invest their super into a number of carefully chosen superannuation-based investment funds to gain genuine diversification benefits, and that the couple retain their $50,000 in cash to top up their income as required.

Centrelink would not count the couple’s $500,000 in the super funds as an asset, and the couple would therefore qualify for full Newstart Allowance. We would also recommend an asset allocation which should reliably achieve fairly smooth returns for their super funds with a long term average of 6.8% p.a.

As a result, (and assuming neither find part-time work) the couple could expect their income in Year One to be made up as follows (after the Centrelink waiting period):

Newstart Allowance                  $24,617
Cash income                            $1,250
Cash drawdown                        $32,133
Less: Tax                                        NIL
                                               $58,000

On turning ‘Age Pension age’, we would recommend new financial strategies to help the couple qualify for a part pension and to ensure their tax effective retirement continues.

As a result, we would expect Melissa & James’ retirement savings to last until they are 99 years of age – well past their life expectancies, as shown in Chart 1.*

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*Assumptions

Melissa & James’ superannuation is 100% ‘Taxable’ component. Term deposits earn 4.5%, cash 2.5%. With No Planning: They withdraw super, and invest in term deposits ($500,000) and cash ($50,000). With AU: They roll over their superannuation until Age Pension age. At Age Pension age, they commence Account Based Pensions. Superannuation is assumed to earn 6.8%, ABPs 8% p.a.Centrelink rates and thresholds are current as at 1 January 2015 and are indexed by 3% p.a. Tax rates are current as at 2014/15. Age pension age is currently 65.