Losing a partner is tragedy enough. Unintentionally making things financially difficult as well will hurt them even more.
All too often spouses unwittingly make financial decisions that increase the likelihood that their partner will suffer a reduced standard of living if they were to die first.
Most retirement income strategies do not take into consideration the reduction in the Age Pension when one partner passes away.
More often than not, even with the best intentions, the surviving spouse is left with inadequate income when they are alone.
Our sustainable retirement income strategy ensures capital is held in reserve to provide the extra income that will be needed to compensate for the reduced Age Pension at this most vulnerable time.
How can we help?
The retirement income strategies that we recommend are far more successful and cost effective than traditional account based pensions, annuities or the new hybrid retirement income products
Our unique financial strategy is based upon the same principals and techniques employed by the Trustees of successful Defined Benefit Pension Funds.
As a result, our bespoke optimised portfolios will provide you with more initial and better long-term income than traditional “balanced” account based pensions.
Importantly, when the time comes when one of you is on your own, the surviving spouse will have the financial reserves to increase their own income at the time that your Aged Pension is reduced from the Couples Rate, down to the single Rate.
There are several things that you can also do that will enhance the income of your surviving spouse.
For instance:
1. Keep an eye on your expected life expectancy and know in advance for how many years you may anticipate receiving the couple Age Pension Couple Rate. Plan for the time when your surviving partner will receive the lower (and more severely means tested) Single Rate Age Pension.
2. Once a healthy married couple reaches age 65, there is a nearly 50 percent chance that one of the two spouses will live to age 95. Accordingly, most baby boomers need to plan for 30 years in retirement. To plan for this longevity, you should withdraw no more than about five percent of retirement assets in the way of annual income. Withdrawing in excess of these minimums could lead to inadequate funds being available for the future, especially if exposed to market downturns and/or inflation.
3. It is possible to draw down capital in retirement over the same duration in many different ways. Each of these ways will have ramifications for your Department of Human Services/Centrelink Age Pension entitlements in the years ahead (except for those individuals already on the maximum Centrelink Age Pension).
4. From the Age Pension Income Test point of view, where a reversionary pension nomination is made, the non-assessable (deductible) amount will be calculated using the longer of the client's or their beneficiary’s life expectancy. Make sure that your deductible amount is optimized for maximum Age Pension benefits.
5. In cases where superannuation/allocated pension benefits could be disputed, binding death nominations and non-lapsing beneficiary nominations will provide added certainty and often speed up the process of death benefit payments.
6. Protect your assets against market downturns - especially during the crucial early years (Red Zone) as capital losses during this time could have a catastrophic effect on your future long-term income.
7. Health care costs are one of the main causes of spouse impoverishment. Often Medicare and private health insurance are the only means for paying these medical expenses. Reducing your private health insurance or abandoning it altogether would be unwise.
8. Entry to nursing homes and needing nursing care could require substantial deposits and ongoing expenses. Raising the funds necessary can mean cashing in your investments and leaving one partner with limited assets on which to live. You need to be prepared and plan ahead accordingly.
9. Review your car, home and contents insurance regularly to make sure that your level of cover is adequate.
10. Ensure that your Will and Power of Attorney are up to date. It is advisable to provide Binding Nominations to the Trustees of your superannuation and pension funds if there is the possibility of a dispute or challenge to your Will.
11. Keep separate bank accounts. Having separate bank accounts ensures access to cash in case of incapacity or the death of either partner. Banks are sometimes legally bound to freeze deceased accounts until the granting of probate and may require certified copies of a Power of Attorney to operate a joint account if one signatory is incapacitated.
12.You may be eligible for numerous benefits, from a whole or part Age Pension to concessions on health care, public transport and services. These are available through the Pensioner Concession Card, Commonwealth Seniors Health Card, Health Care Card and the Queensland Seniors Cards. You may miss out on these benefits because you do not structure your investments to fulfil the requirements of the Assets and Income tests Some retirees. Get to know and to understand which concessions you may be eligible for and how the rules apply. It is estimated that the Pensioner Concession Card alone can be worth $1,000 to $2,000 in benefits per annum.
13. Your investments and retirement income strategy should be well understood by both your spouse and yourself. Your risk tolerance and ability to understand market fluctuations may not match those of your spouse. Risk tolerances may change with the loss of a partner. Having to move investments from one asset class to another to suit your surviving spouse may result in the loss of some of your capital. Make sure that your financial strategy suits both partners from the start.
