Retirement often involves a shift from employment income to income derived from a combination of your retirement savings (investments inside and/or outside of superannuation) and potential Age Pension entitlements.

In a nutshell, it’s these sources of income that help you to fund your retirement lifestyle.

Consequently, for many of us, retirement age is often guided by the rules relating to the accessibility of certain sources of income.

Accessing superannuation
Superannuation can be a powerful investment structure for wealth accumulators and retirees alike, considering its tax-effectiveness and the benefits of compounding (which is often applied over an extended period).

Benefit payment standards
In the superannuation environment, there is a term called ‘Benefit Payment Standards’. This term encompasses the conditions of release in which you are eligible to access your superannuation and the cashing restrictions that apply, i.e. whether your benefits can be paid as a lump sum, pension or both.

Whilst there are provisions (e.g. permanent incapacity, severe financial hardship etc.) that allow for early access to superannuation, the ones pertaining specifically to retirement planning are as follows:

• Reaching age 65 (regardless of whether you are retired or not)
  • No cashing restrictions, benefits can be paid as a lump sum, pension or both.

• Termination of a gainful employment arrangement after reaching age 60
  • No cashing restrictions, benefits accrued up until the date of termination can be paid as a lump sum, pension or both; however, new contributions or growth on balance after this date will be preserved until another condition of release is met, such as attaining age 65.

• Permanent retirement after reaching preservation age
  • You must cease gainful employment, and your superannuation trustee must be satisfied that you do not intend to be gainfully employed (on a part or full-time basis) ever again.
  • No cashing restrictions, benefits can be paid as a lump sum, pension or both.

• Reaching preservation age (where you have not retired)
  • There are cashing restrictions. You could commence a ‘transition to retirement’ pension, where your maximum income each year cannot exceed 10% of your account balance, and you cannot withdraw a lump sum – these cashing restrictions apply until another condition of release is met that has no cashing restrictions.

In two of the points listed above, we refer to ‘preservation age’ – this is the minimum age requirement you must satisfy to access superannuation for retirement planning purposes. Importantly, not everyone has the same preservation age, as it’s adjusted according to birthdate. Please see the table below to find out what your preservation age might be:

Before moving on to the rules relating to the accessibility of the Age Pension, it’s important to take a moment to highlight two key considerations regarding accessing superannuation for retirement planning:

• Tax considerations – if you access superannuation prior to age 60 there may be tax payable on lump sums and income payments (i.e. received from retirement or transition phase pensions).
• Longevity risk considerations – the earlier you start to access your superannuation, the longer the potential period it needs to last. In conjunction with this, the benefits of compounding are also reduced. Consequently, whilst you may satisfy a condition of release prior to age 65 for example, it’s important to consider whether taking up this option aligns with your financial goals and objectives – this also relates to those wishing to retire prior to satisfying a condition of release.

Accessing Age Pension
The Government pays an income support payment, the Age Pension, to senior Australians who meet eligibility tests with regards to age, residency, income and assets.

Briefly, the overall aim of the Age Pension is to ensure senior Australians can meet basic lifestyle expenses. To put this in perspective, utilising ASFA’s Retirement Standard, the base pension rate of the Age Pension provides singles and couples with income that allows them to maintain a lifestyle just below a modest lifestyle in retirement.

The maximum total pension rate (including Pension Supplement and Energy Supplement) differs according to whether you are single (currently $907.60 per fortnight) or a member of a couple (currently $684.10 per fortnight each). However: if a couple is separated due to illness, they are each entitled to the single rate.

Age test
Keeping with the theme of retirement age, an individual needs to satisfy a minimum age requirement (qualifying age) to access the Age Pension. In a similar vein to superannuation and preservation age, not everyone has the same minimum age requirement, as it’s adjusted according to birthdate. Please see the table below to find out what your minimum age requirement might be:

Residency test
Generally speaking, to meet the residency test for the Age Pension, you need to be an Australian resident, and have been so for at least 10 years in total. Furthermore, for at least five of these years, there must have been no break in your residence. However, there may be some exemptions to this, for example, if you were a refugee or former refugee.

Also, it’s worth noting, there is legislation currently being debated in parliament that if passed would see new applicants (from 1 July 2018) faced with enhanced residency requirements (however, existing exemptions would still be preserved). The proposed enhanced residency requirements to be deemed eligible to receive the Age Pension are as follows:

• 15 years of continuous Australian residence, or

• 10 years of continuous Australian residence, with at least five years of this during their Australian working life (i.e. between age 16 and Age Pension age) or

• 10 years of continuous Australian residence, and not have been an activity tested income support payment recipient for a five-year cumulative period.

Income & assets tests
Before we dive into the details with these two tests, it’s important to highlight that the rate of payment of the Age Pension is calculated under both the income test and the assets test, with the test that results in the lower rate (or nil rate) being applied.

Please note: If you receive less than the base pension rate, you may be entitled to the Pensions Loans Scheme; and, in the income test and the assets test listed below we have not included the transitional arrangements that may apply to some pensioners that received the Age Pension prior to 20 September 2009 (and continue to do so).

 *Some assets are deemed to earn income, whilst there are special rules for other types of income. Furthermore, the Work Bonus may be applicable if you are earning income from employment.

^Income over these amounts reduces the rate of pension payable by 50 cents in the dollar (single), 25 cents in the dollar each (for couples).

#These amounts may be higher if Rent Assistance is paid with your pension.

*Some assets are deemed to earn income, while certain assets are not included (e.g. generally your principal home is exempt) in the assets test.

^Assets over these amounts reduce pension by $3 per fortnight for every $1,000 above the amount (single and couple combined).

#These amounts may be higher if Rent Assistance is paid with your pension.

Moving forward
For many of us, retirement age is often guided by the rules relating to the accessibility of certain sources of income, for example, superannuation and the Age Pension. These days many people feel that the retirement age is generally on or around age 65. However, whether this is the case for you will depend on your financial situation, goals and objectives (as well as other factors, such as your current health and the demands that your job places on you both physically and mentally). With this in mind, here are two articles that you might find interesting:

• When age 65 is too young to retire

• Five things every early retiree needs to know!

If there is anything in this article that you would like to discuss, please do not hesitate to contact us.