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How good are the calculators super organisations use as a reasonable tool for forecasting the length of time one's money would last? Do they take into account not only inflation but also the fact that in pension mode, the percentage that needs to be withdrawn each year increases as one gets older?

By InvestSMART · 2 Jul 2011

By InvestSMART ·
2 Jul 2011

Comments

The calculators you mention are a useful guide but they are no more than that. This is because the amount of money you need in retirement depends on a range of variables that include the rate of inflation, the earning rate you can achieve, how long you will live and the state of your health. This is why it is important to have an annual check-up with your adviser to ensure you are on track to reach your goals and to change strategies when appropriate.

I wish to retire next year when I will be 63. I'm a member of the defined benefits fund and am planning to take a lump sum of $100,000, plus an indexed life pension of about $2100 a fortnight. Our total financial assets should be about $200,000. I have looked at the Centrelink website but find it difficult to determine how they treat defined benefit income streams. Will I qualify for a part-pension?

The income test cut-off for a couple is $63,824.80 a year and, with a pension of $54,600 a year and deemed income of about $7300 a year, you are very close to that. However, indexed pensions may have a deductible portion that will reduce the amount for Centrelink purposes. The only way to find out this figure is to talk to your super fund's trustee. It should then be an easy calculation.

Advice is general and readers should seek their own professional advice. Contact noel.whittaker@whittaker macnaught.com.au.

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Frequently Asked Questions about this Article…

How accurate are superannuation calculators for forecasting how long my retirement savings will last?

Superannuation calculators are a useful guide but not a precise forecast. Their results depend on assumptions about inflation, the investment earning rate, how long you'll live and your health. Use calculators to get a sense of your position, but review results with a financial adviser and update them regularly.

Do retirement calculators account for inflation and increasing withdrawal needs as I get older?

Some calculators include inflation assumptions, but they’re only a guide and may not fully capture changing withdrawal needs as you age. Because retirement outcomes depend on multiple variables, it’s important to check your plan with an adviser and adjust strategies when circumstances change.

What key variables should I consider when using superannuation calculators for retirement planning?

When using superannuation or retirement calculators, focus on inflation rate, the investment earning rate you expect, your potential lifespan and your health. These factors drive how long your money will last and whether you need to change withdrawal or investment strategies.

Should I have an annual retirement check-up with my financial adviser?

Yes — an annual check-up with your adviser is recommended. Regular reviews help ensure you’re on track to meet retirement goals and allow you to change strategies when appropriate given market moves, health changes or shifts in personal goals.

How does Centrelink treat defined benefit or indexed life pension income when assessing a part‑pension?

Centrelink assessments can be affected by defined benefit or indexed life pensions because some indexed pensions have a deductible portion that reduces the amount counted for Centrelink purposes. To know exactly how your income stream will be treated you should ask your super fund’s trustee for the deductible portion, then Centrelink calculations become straightforward.

If I plan to take a $100,000 lump sum plus an indexed life pension of about $2,100 a fortnight and have $200,000 in financial assets, will I qualify for a Centrelink part‑pension?

Under the income test example in the article, a couple’s cut‑off is $63,824.80 a year. A $2,100-a-fortnight pension is about $54,600 a year and with deemed income of roughly $7,300 a year you’d be very close to that cut‑off. However, indexed pensions may have a deductible portion that changes the Centrelink assessment, so check the deductible amount with your fund’s trustee before making conclusions.

What is deemed income and how does it affect Centrelink part‑pension eligibility?

Deemed income is the notional income Centrelink uses when assessing financial assets for the income test. In the article’s example it adds around $7,300 a year to the assessed income. Deemed income can push you closer to (or over) the income-test cut‑off, so include it when estimating part‑pension eligibility and confirm pension treatment with your trustee.