Retirement and Estate Planning
Retirement planning is the accumulation of wealth to provide income and financial security in retirement.
Estate planning focuses on wealth preservation and wealth transfer.
When do you need financial advice?
How can we help?
With a dedicated technical research team Morgans' advisers are kept up to date with legislation changes.
If you are planning your retirement, just reducing your working hours, or thinking about an estate plan, we can help.
Retirement planning
Effective retirement planning involves both tax efficiency and strategic investments. Beginning retirement planning early is crucial as it allows for ample time to prepare. Ensuring that your retirement income is tailored to align with your specific needs and goals is paramount. During retirement, income typically originates from three primary sources: superannuation, which includes pension income streams and lump sum withdrawals; non-superannuation assets, encompassing returns from shares, property, cash, and fixed interest; and Centrelink benefits, such as the age pension. Our expertise can guide you in structuring your retirement income stream to best suit your financial requirements.
Estate planning
Estate planning serves the vital purpose of safeguarding your family's wealth through the strategic distribution of assets to chosen beneficiaries. Achieving this objective necessitates a thorough assessment of each beneficiary's individual circumstances, ensuring that the inheritance positively contributes to their financial well-being without adverse repercussions.
Central to effective estate planning is the establishment of a current and legally binding will. Beyond the will, it's essential to consider additional instruments such as Powers of Attorney, medical directives, testamentary trusts, and business succession plans. Particularly regarding superannuation, which falls outside the purview of a will, proactive steps such as nominating beneficiaries and establishing binding death nominations are crucial to ensure that your intentions are honoured in the distribution of superannuation death benefits.
Implications for SMSFs
With respect to self managed superannuation funds, trustees and members effectively have ultimate control in the distribution of death benefits within your fund.
It is important you prepare a strategy for the payment of benefits to members' chosen beneficiaries and incorporate the facilities to implement this strategy in your trust deed. It will also be necessary to make preparations for the wind-up of the fund in the event of the deaths of all trustees and members.
Centrelink issues
Centrelink benefits are available for eligible seniors who have retired or are about to retire. Eligibility is based on two tests – the Incomes Test and the Assets Test. Your financial position (combined if a couple) is taken into account for these two tests, and eligibility for benefit payments is determined by the outcome of these tests.
We recommend you visit the ‘Retirement years' page on the Services Australia website. This page is a very useful guide to help individuals understand income support, what additional services and supplements are available and how you can make a claim. It also discusses residential aged care for those who are looking at their options for retirement homes.
News & Insights
Australian’s life expectancies are increasing over time. We can now expect to live longer - on average 5 to 7 years longer - than our parents or grandparents did.
The problem is that as we live longer, we also need to support ourselves for longer in retirement. This is compounded by the fact that, according to the Australian Bureau of Statistics (ABS), we are retiring earlier these days with the average age of retirement reported to be 56.9 years. Interestingly, the average age people intend to retire is 65.4 years.
According to the ABS’s May 2024 report:
- There were 4.2 million retirees
- The average age at retirement (of all retirees) was 56.9 years
- 130,000 people retired in 2022, with an average age of 64.8 years
- The average age people intend to retire is 65.4 years
- Pension was the main source of income for most retirees
In their Media Release supporting their 2024 retirement report, ABS’s head of labour statistics, Bjorn Jarvis, said: “While the average age people intend to retire has risen over time, it hasn’t changed much in the last 10 years. This average has been between 65.0 and 65.6 years for close to a decade, since 2014-15. On average, men intend to retire slightly later than women, but this gap is closing. In 2022-23, there was around half a year difference between men and women, compared to a year difference a decade ago.”
Source: ABS
Income at retirement
According to the ABS retirement report, a government pension or allowance was still the main source of personal income at retirement for 43% of retirees. This was followed by Superannuation, an annuity or private pension at 27%.
Source: ABS
Factors influencing retirement
In 2022-23, the most common factors influencing older workers’ decision to retire was still financial security (36%) and personal health or physical abilities (22%). Around one in eight retirees (14%) said reaching the eligibility age for an age (or service) pension was a key factor.
Retirement planning
According to the ABS, 710,000 people intend to retire in the next 5 years, with 226,000 in the next 2 years. Will you be one of these people? If so, do you have the confidence your retirement plans will be enough to support you in retirement? Your Morgans adviser can review your retirement position and recommend strategies that will help you stay on track so that your retirement, when it happens, is an enjoyable stage of life. Already retired? We can help there too.
Contact your Morgans adviser today to schedule an aged care advice appointment. Our expert team will be able to simplify the aged care system, guide you through Government subsidies, analyse payment options, create 5-year cash flow projections, and model the benefits of home concessions and future asset values for your beneficiaries.
Following the release of the Aged Care Taskforce report earlier this year, the federal government has recommended a number of changes to the cost of residential aged care, some will commence from the beginning of 2025 and the remainder expected to commence from 1 July 2025.
Over the next 40 years, the number of people over 65 is expected to at least double and the number of people over 85 expected to triple. A significant amount needs to be invested in the Aged Care sector, by both government and private sector, to be able to manage the growing numbers of older people needing care and support in their later years.
From 1 January 2025:
- Increasing the refundable accommodation deposit (RAD) maximum amount without approval from $550,000 to $750,000. This amount will be indexed annually.
From 1 July 2025:
- Introduce a RAD retention amount of 2% pa to a maximum of 10% over 5 years.
- Removing the annual fee caps and increasing the lifetime fee caps to $130,000 or 4 years, whichever occurs first.
- Introducing a means-tested hotelling supplement of $12.55 per day which is to be indexed.
- Removing the means tested fee and replacing it with a means tested non-clinical care contribution (NCCC). The daily maximum is $101.16 which is to be indexed.
From 2029/30:
- The government is looking to commence a phase out RAD altogether by 2035. A commission will be established to independently review the sector in readiness.
Grandfathering arrangements will protect anyone who enters care prior to 1 July 2025 under the “no worse off” principle to ensure they do not pay more for their care.
Comparison of current and new aged care costs
Current aged care fees
The Basic Daily fee continues to be paid by all residents without change.
The Hotelling Supplement is paid by residents as a contribution towards their living costs. It is a means tested payment calculated at 7.8% of assets greater than $238k or 50% of income over $95,400 (or a combination of both). The Hotelling Supplement is capped at $12.55 per day (indexed).
The Non-Clinical Care Contribution (NCCC) replaces the current means tested fee. The NCCC is a contribution towards the cost of non-clinical care services which will be capped at $101.16 per day (indexed). It is a means tested fee calculated at 7.8% of assets over $501,981 or 50% of income over $131,279 (or a combination of both).
The lifetime cap for the NCCC is increasing to $130,000 or 4 years, whichever occurs first, indexed twice per year. There is no longer an annual cap.
Any contributions made under the home support program prior to entering residential aged care will count towards the NCCC cap.
Who will likely pay more from 1 July 2025?
It is expected that at least 50% of people entering care will pay more for their care each year.
The below chart illustrates the expected changes for regular care costs (excluding accommodation costs and retention amounts) for individuals based on specific asset levels:
Should you enter residential aged care before 1 July 2025?
It depends. For some people, if they have an ACAT assessment and are eligible to enter residential aged care, then it would be best to seek advice from your Morgans Adviser on both the current and future cost as well as cash flow and cost funding advice.
Contact your Morgans adviser today to schedule an aged care advice appointment. Our expert team will be able to simplify the aged care system, guide you through Government subsidies, analyse payment options, create 5-year cash flow projections, and model the benefits of home concessions and future asset values for your beneficiaries.
The year 2024 will arguably be known as the ‘cost of living crisis’ year. So many Australians are feeling the pain of this high inflation environment, particularly with everyday consumer items and mortgage stress. Unfortunately, our Chief Economist, Michael Knox, is not expecting an interest rate cut by the Reserve Bank of Australia until mid-2025.
As we enter production of this edition of Your Wealth, the proposed $3 million super tax – or Div 296 as it is known - faces an uncertain future. Will it be tabled in February when Parliament resumes? If an early election is called, it could effectively be off the table until after the election.
We hope it gets shelved completely. We have always viewed this as bad policy; in fact, the worst policy that has ever been proposed for superannuation.
This latest publication will cover Australian retirement intentions, the new Aged Care Act 2024, Trump's trade negotiations policy, expected to reduce tariffs, contribution strategies for older generations, and understanding the benefits of the Legacy Pension Amnesty which is now law.
Morgans clients receive exclusive insights such as access to our latest Your Wealth publication. Contact us today to begin your journey with Morgans.
