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Due - Sun 1 Nov. 11.59pm Marina, a widow was born 1 Aug 1955 and is planning on retirement in early 2023 when she thinks she will be eligible for the Aged Pension. She has one daughter aged 35 who is not dependent on her. She would like to know if she will in fact be eligible for this pension and if so, roughly how much she would receive based on her current assets. Marina has an inherited health issue and feels she is unlikely to live beyond her late 70's. While she has Private Health Insurance now, she is not sure whether it is worth keeping. She has about $250,000 in her superannuation fund and is thinking she would like to increase the amount in superannuation so that she could draw down a superannuation pension to top up any Aged Pension she is eligible for when she retires. While her employer is making Superannuation Guarantee contributions to her superannuation, Marina has been thinking of salary sacrificing up to the maximum amount or putting some money from her bank account into super and has come to you for advice on this and her upcoming retirement plans - she is happy to work on today's figures knowing they will change. She would also like to discuss any strategies she can use to maximise her Aged Pension entitlement while ensuring she lives comfortably and/or any investment strategies to give her a better retirement. Marina recently signed a new employment contract that will pay her $160,000 per annum (p.a.) (excluding superannuation) for the next few years, she receives $650 p.a. from interest income from her savings and also receives $1,000 unfranked income p.a. from the investments in her managed fund (non-super). She has personal tax deductions of approximately $500 p.a., living expenses of approximately $60,000 p.a. and a credit card debt of $12,000 from an overseas trip she undertook. She anticipates she will be able to comfortably live on around $30,000 per annum once she retires. Marina has the following assets & liabilities: Principal residence (no mortgage) Home contents (market value) Superannuation balance Car (purchase price 2020) Credit Card Managed Fund - assume 2% income unfranked) Term Deposit (assume 1% income) $700,000 $10,000 $250,000 $20,000 ($12,000) $50,000 $50,000 Savings Account (assume 1% income) $15,000 Marina considers herself to be a Balanced/Growth Investor, having previously invested in share funds for a long time and taken interest in her superannuation investments, but would like to keep approximately $50,000 in cash type investments as a backup/emergency fund. Question 1 (8 marks) In relation to the details provided above, there are several factors that you, as a financial adviser, need to ascertain in further detail in order to provide recommendations to Marina. Identify at least 4 of these factors and for each of these, briefly analysing why that factor is important for providing advice to Marina. Factor identified Why the factor is NB for fin plan advice 1. 2. 3. 4. Question 2 (8 marks) Identify at least four (4) S.M.A.R.T. goals and objectives, including any you may have identified for Marina. In your answer, state whether each goal is achievable and/or a timeframe to execute the goal, and any relevant comments about the goal. Goal Achievable/Timeframe/Comments 1. 2. 3. 4. 5. Question 3 (6 marks) How much superannuation guarantee will be paid for Marina and how much would Marina be eligible to salary sacrifice into super in the 20/21 financial year assuming she had total concessional contributions of $10,000 in the 2018/19 and 2019/20 Financial Years? (6 marks) Read the following to assist you with your answer: https://www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Super-contributions---too- much-can-mean-extra-tax/?page=2 Question 4 (5 marks) You have been given the tax calculation for Marina for 20/21 FY, before a possible salary sacrifice strategy (Before Column). Calculate Marinas tax assuming she undertake a salary sacrifice strategy (assuming the maximum allowable salary sacrifice from Q2) to determine how much tax she will save and what additional savings capacity she will have. Use the 2020/2021 tax rates provided in the Resources and include calculationsotes below the table. Tax Calculation 2020/21 Before After 160,000 160,000 0 650 Gross Salary/wages Salary Sacrifice Other income (TD & Savings assumed 1%) Other income (Mgd Fund Earnings assumed 2% unfranked) Assessable income Tax Deductions 1000 161,650 -500 Taxable income 161,150 Income tax 47,305 Medicare 3,223 0 50,528 Medicare Levy Surcharge (if applicable) Total PAYG tax liability Net income after tax Estimated Living Expenses Net Savings Capacity 111,122 60.000 60,000 51,122 50,528 Total Tax Liability (inc super tax) Tax Saving in Salary Sacrifice strategy 0 1. Before = $161,150 - $90,000 = $71,150 x 37% = $26,326 + $20,797 = 547,305 After = 2. Before total tax liab of $47,305+ $3,223MC = $50,528 After = 3. Super cont tax* = Question 5 (10 marks) Marina would like to understand if she is likely to be eligible for the Aged Pension when she reaches the eligible age. Calculate an estimate of what she would likely receive per annum today using the Age Pension data provided in the Resources and the following assumptions: Marina has reached Age Pension age Her superannuation balance has increased by another $50,000 The valuations on her other assets have not changed. Question 6 (10 marks) Once retired, assuming her existing investments are as estimated in Q5 and she receives the amount of Aged pension you calculated in Q5, discuss how can Marina can generate the balance of her desired income from her superannuation investment. In your discussion, include reference to: *approximately how much Marina would need to earn/drawdown to reach her desired retirement income, * suitable investment product that can be used (both superannuation products and products/investments she could access if she took her money out of super) * any tax implications of these products. * the minimum and maximum amounts she may be able to access, and how, if she keeps the funds in the superannuation environment. Question 7 (4 marks) Suggest at least 4 strategies Marina could employ to increase her Age Pension entitlement and whether there are any risks in her using these strategies. Question 8 (4 marks) As an alternative to maximising the Age Pension, what other strategies could Marina undertake to improve her retirement position over the next 2 years before retirement Consider Marinas goals (including those you may have identified); her savings capacity and any limits (even if Marina does not have the funds to hit these limits) in the possible strategies. 1. Tax rates 2019-20, 2020-21 Taxable income Tax on this income Effective tax rate $18,201 - $37,000 19c for each $1 over $18,200 0-9.65% $37,001 - $90,000 $3,572 plus 32.5c for each $1 over $37,000 9.65 -22.78% $90,001 - $180,000 $20,797 plus 37c for each $1 over $90,000 22.78 - 30.13% $180,001 and over $54,097 plus 45c for each $1 over $180,000 30.13 - less than 45% 2. Account Based Pension drawdown percentages Age Annual payment as a % of account balance 55-64 4% 65-74 5% 75-79 6% 80-84 7% 85-89 9% 90-94 11% 95+ 14% 3. Qualifying Age for Age Pension Your birthdate Your Age Pension age 1 January 1954 to 30 June 1955 1 July 1955 to 31 December 1956 On or after 1 January 1957 66 years 66 years and 6 months 67 years 4. Centrelink deeming rates on financial assets under income test @ 01/05/2020 Deeming rate Single pensioner Pensioner couples 0.25% On first $53,000 of financial assets On first $88,000 of financial assets 2.25% Excess assets Excess assets 5. Centrelink Pension Rates - @ 20/03/2020 Per fortnight Single Couple each Couple combined Couple apart due to ill health $860.60 $648.70 $1,297.40 $860.60 Maximum basic rate Maximum Pension Supplement Energy Supplement $69.60 $52.50 $105 $69.60 $14.10 $10.60 $21.20 $14.10 Total $944.30 $711.80 $1,423.60 $944.30 https://www.servicesaustralia.gov.au/individuals/services/centrelink/are-pension/how-much-you-can-rettal 6. Centrelink Income Test Limits-@ 01/07/2020 Family Income per fortnight Situation (to get Full Pension) Max Income per Pension Reduction fortnight (to get Part Pension) 50 cents for each Less than $2,066.60 dollar over $178 50 cents for each Less that $3,163.20 dollar over $316 Single Up to $178 Couple Up to $316 https://www.servicesaustralia.gov.au/individuals/services/centrelink/are-pension/how-much-you-can-get/income-test-pensio 7. Centrelink Asset Test Limits-@ 01/07/2020 Family Situation Asset Limit to get Full Pension (Homeowner/Non Homeowner Pension Reduction Max Assets - to get Part Pension (Homeowner/Non Homeowner) Single $268,000/$482,500 $3pf for every$1000 $583,000/$797,500 over limit Couple $401,000/$616,000 $3pf for every$1000 $876,500/$1,091,000 over limit https://www.servicesaustralia.gov.au/individuals/services/centrelink/age-pension/how-much-you-can-get/assets-test Due - Sun 1 Nov. 11.59pm Marina, a widow was born 1 Aug 1955 and is planning on retirement in early 2023 when she thinks she will be eligible for the Aged Pension. She has one daughter aged 35 who is not dependent on her. She would like to know if she will in fact be eligible for this pension and if so, roughly how much she would receive based on her current assets. Marina has an inherited health issue and feels she is unlikely to live beyond her late 70's. While she has Private Health Insurance now, she is not sure whether it is worth keeping. She has about $250,000 in her superannuation fund and is thinking she would like to increase the amount in superannuation so that she could draw down a superannuation pension to top up any Aged Pension she is eligible for when she retires. While her employer is making Superannuation Guarantee contributions to her superannuation, Marina has been thinking of salary sacrificing up to the maximum amount or putting some money from her bank account into super and has come to you for advice on this and her upcoming retirement plans - she is happy to work on today's figures knowing they will change. She would also like to discuss any strategies she can use to maximise her Aged Pension entitlement while ensuring she lives comfortably and/or any investment strategies to give her a better retirement. Marina recently signed a new employment contract that will pay her $160,000 per annum (p.a.) (excluding superannuation) for the next few years, she receives $650 p.a. from interest income from her savings and also receives $1,000 unfranked income p.a. from the investments in her managed fund (non-super). She has personal tax deductions of approximately $500 p.a., living expenses of approximately $60,000 p.a. and a credit card debt of $12,000 from an overseas trip she undertook. She anticipates she will be able to comfortably live on around $30,000 per annum once she retires. Marina has the following assets & liabilities: Principal residence (no mortgage) Home contents (market value) Superannuation balance Car (purchase price 2020) Credit Card Managed Fund - assume 2% income unfranked) Term Deposit (assume 1% income) $700,000 $10,000 $250,000 $20,000 ($12,000) $50,000 $50,000 Savings Account (assume 1% income) $15,000 Marina considers herself to be a Balanced/Growth Investor, having previously invested in share funds for a long time and taken interest in her superannuation investments, but would like to keep approximately $50,000 in cash type investments as a backup/emergency fund. Question 1 (8 marks) In relation to the details provided above, there are several factors that you, as a financial adviser, need to ascertain in further detail in order to provide recommendations to Marina. Identify at least 4 of these factors and for each of these, briefly analysing why that factor is important for providing advice to Marina. Factor identified Why the factor is NB for fin plan advice 1. 2. 3. 4. Question 2 (8 marks) Identify at least four (4) S.M.A.R.T. goals and objectives, including any you may have identified for Marina. In your answer, state whether each goal is achievable and/or a timeframe to execute the goal, and any relevant comments about the goal. Goal Achievable/Timeframe/Comments 1. 2. 3. 4. 5. Question 3 (6 marks) How much superannuation guarantee will be paid for Marina and how much would Marina be eligible to salary sacrifice into super in the 20/21 financial year assuming she had total concessional contributions of $10,000 in the 2018/19 and 2019/20 Financial Years? (6 marks) Read the following to assist you with your answer: https://www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Super-contributions---too- much-can-mean-extra-tax/?page=2 Question 4 (5 marks) You have been given the tax calculation for Marina for 20/21 FY, before a possible salary sacrifice strategy (Before Column). Calculate Marinas tax assuming she undertake a salary sacrifice strategy (assuming the maximum allowable salary sacrifice from Q2) to determine how much tax she will save and what additional savings capacity she will have. Use the 2020/2021 tax rates provided in the Resources and include calculationsotes below the table. Tax Calculation 2020/21 Before After 160,000 160,000 0 650 Gross Salary/wages Salary Sacrifice Other income (TD & Savings assumed 1%) Other income (Mgd Fund Earnings assumed 2% unfranked) Assessable income Tax Deductions 1000 161,650 -500 Taxable income 161,150 Income tax 47,305 Medicare 3,223 0 50,528 Medicare Levy Surcharge (if applicable) Total PAYG tax liability Net income after tax Estimated Living Expenses Net Savings Capacity 111,122 60.000 60,000 51,122 50,528 Total Tax Liability (inc super tax) Tax Saving in Salary Sacrifice strategy 0 1. Before = $161,150 - $90,000 = $71,150 x 37% = $26,326 + $20,797 = 547,305 After = 2. Before total tax liab of $47,305+ $3,223MC = $50,528 After = 3. Super cont tax* = Question 5 (10 marks) Marina would like to understand if she is likely to be eligible for the Aged Pension when she reaches the eligible age. Calculate an estimate of what she would likely receive per annum today using the Age Pension data provided in the Resources and the following assumptions: Marina has reached Age Pension age Her superannuation balance has increased by another $50,000 The valuations on her other assets have not changed. Question 6 (10 marks) Once retired, assuming her existing investments are as estimated in Q5 and she receives the amount of Aged pension you calculated in Q5, discuss how can Marina can generate the balance of her desired income from her superannuation investment. In your discussion, include reference to: *approximately how much Marina would need to earn/drawdown to reach her desired retirement income, * suitable investment product that can be used (both superannuation products and products/investments she could access if she took her money out of super) * any tax implications of these products. * the minimum and maximum amounts she may be able to access, and how, if she keeps the funds in the superannuation environment. Question 7 (4 marks) Suggest at least 4 strategies Marina could employ to increase her Age Pension entitlement and whether there are any risks in her using these strategies. Question 8 (4 marks) As an alternative to maximising the Age Pension, what other strategies could Marina undertake to improve her retirement position over the next 2 years before retirement Consider Marinas goals (including those you may have identified); her savings capacity and any limits (even if Marina does not have the funds to hit these limits) in the possible strategies. 1. Tax rates 2019-20, 2020-21 Taxable income Tax on this income Effective tax rate $18,201 - $37,000 19c for each $1 over $18,200 0-9.65% $37,001 - $90,000 $3,572 plus 32.5c for each $1 over $37,000 9.65 -22.78% $90,001 - $180,000 $20,797 plus 37c for each $1 over $90,000 22.78 - 30.13% $180,001 and over $54,097 plus 45c for each $1 over $180,000 30.13 - less than 45% 2. Account Based Pension drawdown percentages Age Annual payment as a % of account balance 55-64 4% 65-74 5% 75-79 6% 80-84 7% 85-89 9% 90-94 11% 95+ 14% 3. Qualifying Age for Age Pension Your birthdate Your Age Pension age 1 January 1954 to 30 June 1955 1 July 1955 to 31 December 1956 On or after 1 January 1957 66 years 66 years and 6 months 67 years 4. Centrelink deeming rates on financial assets under income test @ 01/05/2020 Deeming rate Single pensioner Pensioner couples 0.25% On first $53,000 of financial assets On first $88,000 of financial assets 2.25% Excess assets Excess assets 5. Centrelink Pension Rates - @ 20/03/2020 Per fortnight Single Couple each Couple combined Couple apart due to ill health $860.60 $648.70 $1,297.40 $860.60 Maximum basic rate Maximum Pension Supplement Energy Supplement $69.60 $52.50 $105 $69.60 $14.10 $10.60 $21.20 $14.10 Total $944.30 $711.80 $1,423.60 $944.30 https://www.servicesaustralia.gov.au/individuals/services/centrelink/are-pension/how-much-you-can-rettal 6. Centrelink Income Test Limits-@ 01/07/2020 Family Income per fortnight Situation (to get Full Pension) Max Income per Pension Reduction fortnight (to get Part Pension) 50 cents for each Less than $2,066.60 dollar over $178 50 cents for each Less that $3,163.20 dollar over $316 Single Up to $178 Couple Up to $316 https://www.servicesaustralia.gov.au/individuals/services/centrelink/are-pension/how-much-you-can-get/income-test-pensio 7. Centrelink Asset Test Limits-@ 01/07/2020 Family Situation Asset Limit to get Full Pension (Homeowner/Non Homeowner Pension Reduction Max Assets - to get Part Pension (Homeowner/Non Homeowner) Single $268,000/$482,500 $3pf for every$1000 $583,000/$797,500 over limit Couple $401,000/$616,000 $3pf for every$1000 $876,500/$1,091,000 over limit https://www.servicesaustralia.gov.au/individuals/services/centrelink/age-pension/how-much-you-can-get/assets-test