AYB250 Week 8 lecture content

What are the three phases of retirement income in the lifecycle theory?

Active phase (may work part-time, more time for hobbies/travel), Passive phase (less active, self-care), and the Support phase (moving to an aged care facility).

List the six accumulation principles highlighted in the notes.

Start early; Keep steady; Diversify; Take reasonable risks; Think long term; Let compound interest do the magic.

What is the account-based income stream transfer cap?

Capped at $2 million (transfer balance cap).

What preservation age applies universally from 1 July 2024 in Australia?

60 years old for everyone.

Explain the Proportioning Rule in superannuation.

When a benefit has both tax-free and taxable components, the payment is divided proportionally to the fund’s components; tax-free portion is tax-free, while the taxable/untaxed portions are taxed accordingly.

Name the three main forms of retirement income discussed.

Account-based income stream, non-account-based income stream, and lump sums.

What are the minimum drawdown percentages for an account-based pension by age (2021–23)?

Under 65: 4%; 65–74: 5%; 75–79: 6%; 80–84: 7%; 85–89: 9%; 90–94: 11%; 95+: 14%.

What are Transition to Retirement (TTR) provisions?

A strategy to access super before full retirement (requires preservation age of 60); useful to top up salary when reducing work hours; minimum drawdown 4% and maximum 10%; tax treatment has changed since 2017 with salary sacrifice considerations.

What are the key tax considerations for superannuation benefits?

Tax depends on the type of super, the age of the member (preservation vs over-preservation age), and whether the benefit is taken as a lump sum or an income stream.

What is the difference between ordinary money and super money?

Ordinary money is money accumulated outside super, after tax, not subject to preservation rules; super money gains concessional tax advantages and is subject to preservation rules and potential tax on withdrawal.

What features characterize an Account‑Based Income Stream?

Owned and maintained by the individual; can only be purchased from super; minimum payments; investment earnings are tax-free; longevity risk borne by the individual; commutable; capped at $2 million transfer balance cap.

What distinguishes a Non-Account Based Income Stream from an Account-Based one?

Non-account-based income streams are purchased from providers; capital is managed by the provider; not commutable; provider bears longevity risk; could be fixed-term or lifetime with guarantees.

How are income streams taxed when purchased with ordinary money?

Taxed at marginal tax rates less a deductible amount; no need for individuals to calculate exact tax payable on annuities—deductions are spread over the term.

What is the means-tested care fee cap for aged care, per year and in a lifetime?

Annual cap: about $34,311.23; lifetime cap: about $82,347.13.

What are RAD and DAP in aged care funding?

Refundable Accommodation Deposit (RAD) is an upfront lump-sum; Daily Accommodation Payment (DAP) is the ongoing daily payment.

What housing options are considered in retirement planning besides staying in the family home?

Downsizing to a smaller property, retirement villages (over 55s), granny flats, and aged care accommodation.

What is a Reverse Mortgage and what protects against negative equity?

A loan against home equity; must be at least age pension age; there’s a no negative equity guarantee; Home Equity Access Scheme is an alternative; interest compounds (e.g., 3.95% fortnightly).

What is the basic idea of a Deferred Annuity?

A guaranteed income stream purchased today that starts in the future (deferral period); generally less costly and provides longevity insurance.

What is the role of Employment Termination Payments (ETPs) and their tax treatment?

ETPs include severance, payment in lieu of notice, unused sick leave, golden handshakes, etc.; they are generally taxable with tax-free portions for years of service; rates include 15% after preservation age and 30% before; up to a cap ($260,000); excess taxed at 45% plus Medicare levy.

What are the main housing-related considerations in retirement planning (without going into detailed costs)?

Downsizing, choosing between retirement villages or aged care, and planning for potential aged care housing needs.

What are the main groups facing retirement saving challenges highlighted in the notes?

The gender gap, First Nations Australians, Self-employed workers, and Immigrants.

What is the gender gap in retirement savings according to the notes?

1 in 3 women retire with no super; on average women retire with about half the super of men due to time in workforce and wage differences.

What strategy is suggested for self-employed individuals with SMSFs regarding business property?

SMSFs may acquire business real property (>5% of total assets) if used wholly for business; can lease it back to the member; rent becomes investment income.