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Michael Savy Blog post by Michael Savy

Key Changes you need to know about your Retirement and Pension

So with the recent budget in May this year, the Federal Government announced a few changes in relation to Centrelink. In particular, the one that got a lot of media attention was increase in the age entitlement. It was recommended or suggested to increase the age pension entitlement from age 67 to 70. This would be phased out over the next few years at which point in 2035, age 70 will be the eligibility date. Now, a lot of clients that I’ve been meeting and through conversation with potential clients as well, is that there’s a misinterpretation with respect to when they can retire. With this announcement, a lot of people are thinking that they will have to work until they are 70. What it actually means is that they will be able to retire early should they wish to if they fund themselves. If they are relying on age pension, they will have to wait until age 70.

One of the other key take outs from myself with respect to the announcement made by the Federal Budget, was how the age index are going forward. The proposal at this stage is that from 2017 onwards, the age pension will be indexed against inflation or CPI. Up until this point, the age pension has always been indexed against the average weekly earnings of a male. Now, to put this into perspective, back in 1994, the maximum age pension was $8,900 per annum for a single person. It’s currently $19,900. Now, should we go back to 1994 and we index that at inflation, the maximum entitlement would actually be $11,000, closer to $12,000. Now you can see that there is an approximately $7,000 in income that you would be receiving over that time. So that’s one of the key takeouts that I don’t think has received as much airplay but certainly has an impact on forward planning.

So as a result of the change in the indexation of the age pension, it means that forecasting out in the next 10, 15 to 20 years, we can certainly rely on less support from the government. This puts the imperative on us and individuals to start saving, start planning and start that wealth creation process so that we can subsidise the shortfall in the income. That may be through superannuation, that may be through investment properties, that may be through simply saving and spending less. But it is something that we need to start thinking about now cause we certainly can’t rely on the Centrelink being what it is in 30 years time.

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