Louise Biti explores the important changes to a client’s financial circumstances that apply from age 65 and outlines the steps to help a client get ready.
The Beatles implied that reaching age 64 is a mark of old age – but times and attitudes are changing. With age 65 set as an unofficial retirement age in Australia, most people approach their 65th birthday with some anticipation and excitement rather than trepidation. It is a time when superannuation becomes fully accessible, the age pension can kick in and holiday plans take over.
But it is also a time that can be devastating for clients if they are not prepared both emotionally and financially. So it is important to plan early for the age 65 changes so that your clients are ready.
THE YEARS BEFORE AGE 65
Not everyone will retire at age 65. Retirement may come earlier by choice or due to circumstances. Therefore concessions start at earlier ages to help clients make the most of their savings. (See Table 1).
WHAT HAPPENS AT AGE 65?
Once a client reaches age 65 a number of new concessions apply across taxation, superannuation and Centrelink. But some concessions (such as tax-free amounts in a redundancy payment) will no longer be available. Table2 provides a quick summary of the main changes.
TAXATION CONCESSIONS AT AGE 65
As a general rule, tax is payable if taxable income is more than $6000, but the low income tax offset reduces tax to nil if income is less than $16,000.
Once age pension age is reached, clients can access the senior Australians tax offset and will not pay tax if taxable income is less than:
• Single-$30,685*
• Couple(each)-$26,680*
*Thresholds for 2010/11. One potentially negative aspect of turning age 65 is that clients will no longer qualify for a tax-free amount in a redundancy payment. If a redundancy is likely, clients may benefit from having it paid before reaching age 65.
SUPER CONCESSIONS AT AGE 65
Age 65 is deemed to be an automatic condition of release for super. This means clients can access benefits at any time, 
even if still working full-time.
If an income stream has previously been commenced under the transition to retirement rules, the restriction on how much the client can take out will be removed, so clients can choose how much to take as income and lump sums. The minimum income payment on an account-based pension increases to 5 per cent of the balance (3.75 per cent for 2011/12).
Clients who want to continue adding money to super will need to still be working at least 40 hours within a consecutive 30-day period. The amount that can be contributed to super in a financial year without incurring excess penalty tax is:
• Concessional contributions – $50,000 (from July 1, 2012, this higher limit is proposed to apply only to people with balances less than $500,000).
• After-tax (non-concessional) contributions – $150,000. While under age 65, clients can contribute more in a single year by using the bring-forward rules to combine the limit over a three-year period. Once age 65 is reached this rule cannot be triggered but it can still apply if it was triggered before reaching age 65.
CENTRELINK CONCESSIONS AT AGE 65
The age pension applies from age65formenorage64for women*. This can provide income up to:
• Single person – $18,961.80 per year.
• Couple (each) – $14,292.20 per year.
How much is payable depends on assessable income and assets. Clients who qualify for the age pension will also receive the pension concession card to provide discounts on eligible pharmaceuticals and health services. The Government has allowed a work bonus under the income test. Under this rule the first $250 of any income from employment each fortnight is not assessed as income. This provides an incentive to keep working to increase total income.
Clients who don’t qualify for the pension concession card may be eli
gible for the Commonwealth Seniors Health Card which provides the same discounts. Eligibility is based on taxable income – clients need to have taxable income less than $50,000 a year if single or $80,000 a year combined as a couple.
(* Women are currently eligible from age 64 but this is moving up to age 65. Anyone born on or after January 1, 1957 will not become eligible until age 67.)
GETTING READY
Before clients reach age 65, a few simple steps can help them to be prepared:
1. Check retirement savings and available cash to see if they can use the bring-forward rule to boost how 
much can be added into super.
2. Consider keeping part-time jobs beyond age 65.
3. Look at ways to minimise taxable income if they will not qualify for an age pension, in order to qualify for the CSHC.
4. If a redundancy is likely they should speak to the employer to see if it can be paid before turning age 65.
5. Review the financial plan to ensure the client is financially ready for retirement.
Louise Biti is a director of Strategy Steps – www.strategysteps.com.au
