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ARE YOU BEING DIDDLED WITH YOUR AGED PENSION?

** IMPORTANT - site applies only to Pensions in AUSTRALIA **

The purpose of the service we offer is to OPTIMISE not only the amount of Aged Pension you get from Centrelink but in fact to hopefully FINE TUNE your Retirement Plan for YOUR benefit.

So if you are a person who likes brevity, you can contact us directly at info@agepensionsolutions.com otherwise please read on.

The bottom line is no more complex than if you (or your Financial Advisor/Planner) have NOT done the sums for a FULL 20 YEARS (at least) then there is a very good chance you are diddling yourself in a BIG way (some $50,000 in the typical example below).

The easiest way to explain this is to relate a typical case to you, and we have chosen a Pensioner Couple, Ennis and Alma (not their real names of course for "Privacy reasons") who, both being 65, have an Allocated Pension set aside from their Superannuation Fund (after buying the 4WD Toyota, plus the Sterling of course) of $200,000, which Fund has traditionally been "performing" at about 8% Growth. We have therefore used 8% Growth Rate in the calculations (on their instructions).

Please be patient and concentrate as we think you will be GobSmacked (as they say in Hollywood) with the results.

The reason we say 20 years above is that the Life Expectancy Tables (which are in fact used in the Legislation) suggest a "batting average" of about 20 years for the happily retired couple. Here are the Tables (pink for girls and blue for boys).

As a result of a "fleeting encounter" with a "bean counter type person" the couple decided (as most folk do) that they should "DrawDown" the minimum amount allowable under the legislation (5%, or $10,000 pa in their case), and nominate a 3% "CPI Type" Increase per annum for the DrawDown (which they have instructed us to continue to use in this case). It is not really a plan as such, but let's call it Plan A anyway.

PLAN A

The main reason the couple came to us was that they were concerned that the "plan" would keep most of their money in store until they would probably be dead or at least not able to travel. Our system confirmed (see above) that at 85 there would be 47% more than they started with in the Allocated Pension fund, as well as the fact that the profile would be "lumpy" if they simply relied on the legislated minimum DrawDown (which increases [in lumps] every 5 years or so).

But far more important was OUR advice that the FORMER advice regarding maximising the Aged Pension was in fact totally false (at least in their case with Assets just under the "Cut-in" level). If you look at the Yellow Triangles above you will see that while the Income Test DID stay low, the Asset Test took over because the CAPITAL of the Allocated Pension was increasing, reducing the Aged Pension to 91.80% of the maximum possible. The biggest shock was that had they not changed their plan (to Plan C below) they would have diddled themselves of a HUGE $43,953 of Aged Pension (as well as the insufficient income up front problem).

The next step was to use the LOPS to answer the Couple's question of how much Allocated Pension should they pay themselves in order to exhaust their funds after 20 years. We will call this Plan B.

PLAN B

The LOPS burst into action and after 32 seconds and several million "iteration calculations" it said the answer is $15,812 (and some odd cents) as seen above.

This looked far better profile wise (see the Combined Income Stream above) with far more spending money up front, but now the Green Triangles of the Income Test were eating into their hard earned right to an Aged Pension (and we see just how much in Plan C).

PLAN C

So while the Couple were about to march off into the sunset with Plan B, we did the Paul Hogan bit with "You call THAT a Plan, ...". We fired the LOPS up again but this time asking the far more important question of how much Allocated Pension to MAXIMISE the Aged Pension. This time it took over a minute [on a dual core speed merchant computer] and several more million calculation before the LOPS arrived at 99.72% over 20 years of the maximum possible Aged Pension (see above).

As seen, the initial DrawDown amount was now $13,874 and the Couple were amazed to see that the Combined Income Stream over 20 years (of some $950,000) was but $5,147 less than Plan B, or just $5 per week.

The reason was that although in Plan C they pay themselves $55,571 LESS from their Allocated Pension than for Plan B, Centrelink in turn pays them $50,424 MORE in Aged Pension, essentially (but for the cost of a cheap bottle of wine per week) cancelling out the difference.

But wait folks, as in Demtell there's more (but sorry we don't offer steak knives). At age 85 the $55,571 they did NOT pay themselves had accumulated to $113,736 (Plan C over Plan B). In the graph above this is shown as smoothing out the time from age 86 to 91 for the couple (and now eating into the Aged Pension a bit), but the Couple (if still alive) could take this as a Lump Sum if they wish (to buy into a Retirement Village or whatever).

SUMMARY

Purely by accessing the LOPS and getting the TRUE picture over 20 years (as distinct from a simple Initial Year "she'll be right mate" assessment), the Couple has saved a total of $164,160 (Plan C over Plan B).

But we hear you asking about that Devil's Advocate advocacy. You say that Plan A has $300,000 left over after 20 years. We then say that the Couple had $70 per week (rising to $120 per week by age 84) MORE to spend along the way, adding that such amount can "make or break" lifestyle plans when existing on Retirement Income.

We would also add that you only have ONE life and the years 65 to 85 (if you make it) should not be a continuation of the hard slog up TO 65, but a time to ENJOY life rather than worry about maximising an inheritance for your kids.

But for most people, who have paid out all their lives in taxes, their main concern will surely be the esoteric glee in that WARM & CUDDLY feeling that they were getting AS MUCH AS POSSIBLE back in the form of Aged Pension. And we would conclude by pointing out that such is totally legal, or to put it the other way, Plans like A & B diddle the Couple of some $50,000 purely as a result of the ineptitude of the advice source in NOT "doing the maths".

Certainly the maths we have set up in the LOPS are well above the so called "Beautiful Mind" of Russel Crowe (and probably totally testing Dustin Hoffman in Rainman), but that is OUR problem - all YOU need to do is reap the benefits.

DISCLAIMER

As seen from this example, our service is purely based on "take it or leave it" MATHEMATICAL solutions, and we make no claims as to expertise on investment choices etc or on actual application requirements for pensions and the like. The mathematics built in to the LOPS have been based upon our best understanding of the complex "rules" of the Legislation, as varied from time to time.

The results are presented in a form that is perhaps best described as "Present Value Theory". That says the graphs describe the future worth in "today's dollar". Therefore to maintain consistency between the Aged Pension and Allocated Pension results up to 20 years into the future we suggest you provide a "conservative gestimate" for the Growth Rate of your Allocated Pension as well as for any "CPI Increase" you might wish to nominate.

As an example our own Super Fund had a Growth Rate of 9.9% pa over the last 20 years (including the disaster in 2008), so we are inclined to nominate say 8% for our own calculations/solutions. And to show you the folly of assuming a CPI for either short or long term purposes we have compiled a chart of the annual CPI over the last 40 years, which will be included in the Report you receive should you decide to use our service. We repeat part of that information below.

Kinda lumpy huh? Which is why we leave such "unknown unknowns" to the financial "management" of governments, and stick to the maths.

USING THE SERVICE

Please Click to Return to Top and, IF possibly interested, go to "I May Well be Interested" from the menu under the left handed aged bowler. Then we can start to talk turkey.