Finance Finance News Ask the Expert: Understanding age pension taxes, ETFs, and self-funded retirement

Ask the Expert: Understanding age pension taxes, ETFs, and self-funded retirement

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Licensed financial adviser Craig Sankey answers your burning finance questions. Photo: TND
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Question: If I’m receiving an old age pension, do I have to do a tax return?

Answer: There are a number of reasons individuals are required to lodge a tax return.

For age pensioners, if you have taxable income (including the age pension) above $32,279 for singles, or $28,974 for members of a couple (2019/20), then you may be required to lodge a tax return.

For those below age pension age, a tax return is required if you have taxable income above $18,200.

If you paid any tax throughout the year – for example via PAYG withholding payments – then a tax return is also required.

Additionally, if you are departing Australia for more than one financial year, or if you are wanting to claim tax deductions then a tax return is also required.

Within your MyGov account there is a tool that helps you work out if a tax return is required.

To access this tool in the ATO online services, select Tax, then select Lodgements.

Go to the Income Tax menu then select the ‘Not lodged’ tab. If you are in any doubt, then speak with a licenced tax adviser or accountant.

Question: How do I invest in exchange traded funds?

Answer: Exchange traded funds (ETFs) are a low-cost and increasingly popular way to invest in an index, or indexes.

They are similar to managed funds except that they are listed on the Australian Stock Exchange (ASX).

You can buy and sell units in ETFs through a stockbroker, in the same way you buy and sell shares, so brokerage costs will apply.

You can either use an online brokering service where you do it all yourself, or you can use a full-service broker who will recommend specific ETFs and perform the trades on your behalf.

Some financial advisers can also recommend and trade in ETF’s as part of an overall financial plan.

Question: What is the average amount needed for couple to be self-funded in retirement?

Answer: This is a common question but there is no common answer, as it will depend on your circumstances and objectives.

The amount you require will be dependent on many factors – the first is at what age you intend to retire.

Working longer not only allows your funds to accumulate further, but they won’t need to last as long either.

Are you prepared to draw down on your funds and leave close to zero by the time you reach say 100 years of age, or do you want to live off the investment interest only and leave a large estate?

If you are not prepared to draw down on your funds to meet your income requirements, then you will need a much larger sum.

You have stated you would like to be self-funded, but would you accept some age pension payments?

Many retirees may start off as self-funded but as they draw down on their savings, they then become eligible for a part age pension.

To work out how much you require, the best approach it to firstly work out how much income you would need each year in retirement.

This can initially be based on how much you spend now and make adjustments, such as what would you spend more on in retirement (e.g. travel, health and leisure) and what would you spend less on (e.g. mortgage repayments, work related or commuting costs).

ASIC’s Moneysmart has a retirement planner that helps you crunch the numbers.

The Association of Superannuation Funds of Australia (ASFA) has a ‘Retirement Standard’ that is widely used as a rule of thumb, it currently states that to achieve a ‘comfortable’ retirement of $62,435 a year for a couple, you need $640,000 in savings at retirement.

Given there are so many variables, I would encourage you to seek personalised financial advice to assist you with your retirement planning.

Craig Sankey is a licensed Financial Adviser and Head of Technical Services & Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and whilst they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.