Welcome to a new year – it has certainly started off with a huge degree of volatility. Much of it is because of uncertainty about economic conditions generally thanks to Trump, Brexit, and the ongoing conflict between the US and China.

But as we move into 2019 with all its hope and uncertainty, remember that there is much more to taking care of your finances than merely watching the markets. A good metaphor is an injured leg from a sporting mishap – naturally you would pay particular attention to that leg, but you would be foolish if you became so focused on it that you neglected all the other aspects of life.

There is a federal election due in May and, if we can believe the bookmakers, the Labor Party is going to win. If they do, and their legislation to prevent a refund of franking credits is passed, it will be important for self-funded retirees to adjust their portfolios to make up for the yield that will be lost if excess franking credits are no longer available. There is no need to panic – any changes are many months away which gives us plenty of time to think up and recommend strategies to defeat the tax grab.

Many retirees spend far too conservatively after they retire because they have no idea of how long they’re going to live. This is why I urge you to go to the website www.mylongevity.com.au and complete the short online questionnaire that will give a good estimate of the number of years living you have left.

Of course, the results are not guaranteed but the questionnaire is well researched and if nothing else is a great tool for discussion. The results could be especially useful if it appears that one partner will live many more years than the other.

Keep in mind that the Centrelink treatment of lifetime income products is changing dramatically from 1 July. The official term is “asset tested income stream (lifetime)”. If you take out one of these products after 1 July only 60% of the purchase price will be assessed for the assets test up to age 84 (or for a minimum of five years) and 30% thereafter.

Case study: A couple both aged 70 have $800,000 in assessable assets and receive a tiny pension. If they used $200,000 to purchase a lifetime income product their assessable assets would reduce by $80,000 and their pension would increase by $6240 a year. Challenger advise me that this $200,000 could provide an indexed life-time guaranteed annuity for him of $6,196 a year and for her $5,882 a year. The combination of the increased age pension and the income from the two annuities would give them a guaranteed income of $18,318 in the first year. That could make a huge difference to their financial situation.

The reduction in assessable assets could also give them a valuable safety buffer if Labor’s proposal to abolish the refund of franking credits to non-pensioners becomes law. This is because a portfolio generating franked dividends could increase in value and push them out of eligibility for the age pension.

This is the perfect time to review your wills, and also to ensure you have given one or more trusted persons Enduring Powers of Attorney. As well you should have prepared an Advance Health Directive if appropriate. It’s most important that your family know the location of these documents because often circumstances arise where they are needed urgently.

And keep in mind the death tax of 15% plus Medicare levy, which is levied on the taxable component of your superannuation that is left to a non-dependent. The best way to avoid this tax is to ensure your attorney has instructions to withdraw all your superannuation tax-free and place it in the bank if it is obvious that death is imminent.

Most retirees tend to leave their assets to the surviving partner but this can cause serious problems if they are aged pensioners. This is because the asset test cut off for a couple is $848,000 but for a single it’s $564,000. Think about a couple with assessable assets of $830,000, which include a large share portfolio paying franked dividends. If one of them died, and the assets were left to the survivor, the survivor would find themselves way over the cut-off point for the asset test, and lose the age pension and their franking credits, as well as their beloved partner.


Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. noel@noelwhittaker.com.au