Retire Ready Calculator Advanced Assumptions

We have used the following advanced assumptions in our calculations/projections:

About you

  • You retire at the end of the financial year in which you reach your nominated retirement age.
  • The life expectancy is based on a person aged 65 at the date of calculation, using the latest Australian Life Tables published by the Australian Government Actuary.
  • You will satisfy the work test for making contributions from age 65 to 75 and you have provided your Tax File Number.
  • You are in good health at the point of retirement.
  • The age pension is included in the projection unless if you have unticked the age pension box on the "About You" page on the Fund's website. It is assumed you own your own home unless you have changed this on the "About You" page on the Fund's website.

About Your Retirement Income

  • Upon retirement, your super balance is converted to an account-based pension from a taxed super fund with payments made monthly. The maximum amount you can transfer to a pension is $1.6 million (excluding investment returns earned within the pension account). Any super over this amount is assumed to remain in an accumulation account.
  • Income from the account-based pension will be either the minimum pension amount or the amount required to meet retirement income needs (depending on availability). Minimum pension income is based on the previous year's pension balance.
  • If you chose to apply a Transition to Retirement strategy, this will be applied from your preservation age (see Transition to Retirement section below).
  • If you have a super balance greater than $1.6 million the following applies:
    • Any super above the transfer balance cap of $1.6 million remains in an accumulation account
    • Withdrawals from your accumulation and pension accounts are made in such a way that the ratio of accumulation and pension assets remains constant
    • The ratio of accumulation assets to pension assets is determined at retirement (or the present date if the individual has already retired)\
    • Returns in the pension phase are a weighted average of the returns on assets in the pension account and accumulation account
    • Fees in the pension phase are a weighted average of the fees in the pension account and accumulation account

About the Age Pension

  • The current age pension rules apply in the future.
  • The amount of the age pension paid by the Department of Human Services (Centrelink) will increase with salary inflation.
  • You are eligible for the age pension if you qualify under the assets test and income test applied by Centrelink (i.e. we assume you meet all other criteria).
  • The previous year's balance for other assets is used for the calculation of the age pension in the current year.
  • In applying the income test, we allow for regular payments made from your retirement income account. We do not allow for income on investments outside super.
  • The relevant thresholds for the assets and income tests increase in line with the cost of living.
  • We do not consider any other Centrelink entitlements apart from the age pension.

Fees

  • Administration and investment fees of 0.8% p.a. are deducted from the gross of tax earnings rate.
  • Insurance fees and any other variable and fixed fees have not been considered in this calculator.

Investment Returns

  • Investment returns do not fluctuate each year.
  • The default assumptions used are based on your current investment style, and are consistent and reasonable over the long-term. Actual returns and inflation will differ from the assumptions used, particularly over short time periods. Over the shorter term, wider variations in investment performance can occur, particularly for those portfolios with higher allocations to growth assets such as shares and property. These variations can have a material impact on the illustrations produced.
  • The investment style used prior to your retirement (i.e. from now until the age you enter as the age you wish to retire) is based on your current investments (i.e. the % of your defensive assets versus growth assets) and is mapped to one of six investment styles:

    Six Investment Styles
      Gross return p.a. Annual return less tax Typical % growth assets Typical % defensive assets
    Cash 2.63% 2.23% 0% 100%
    Defensive 4.44% 3.91% 30% 70%
    Diversified 50 5.26% 4.71% 50% 50%
    Balanced 6.15% 5.57% 70% 30%
    Growth 6.65% 6.12% 90% 10%
    High Growth 7.03% 6.52% 100% 0%
  • The investment style used post retirement (i.e. from your retirement until the maximum age you enter) will default to either Defensive or Cash. Where you are currently invested partially (or wholly) in the Fund's Australian Cash Portfolio, the default investment style post retirement will be Cash. In all other cases it will be Defensive.
  • Super fund earnings in the accumulation phase are taxed at 15%. The assumed tax rate used in the projection reflects the expected tax rates of the underlying assets and ranges from 7% for the high growth option up to 15% for cash options. Actual rates of tax applied each year vary depending on the income, franking credits and capital gains make-up in the underlying portfolios.

Contributions

  • All contributions end after age 75.
  • Any super declared outside this Fund is within a taxed accumulation-style super fund.
  • No allowance is made for contributions made under the Capital Gains Tax (CGT) cap or because of personal injury.
  • If you are working, you continue to work every year up to your retirement.
  • All before-tax super contributions below the concessional contributions cap are taxed at 15% upon entering the super fund (before-tax contributions for individuals with income greater than $250,000 are taxed at 30%). Any excess regular before-tax contributions will be adjusted for personal income tax and treated as non-concessional contributions in addition to regular non-concessional contributions.
  • Total regular before-tax contributions are limited to the relevant concessional contribution limits and any excess regular before-tax contribution will be adjusted for personal income tax and treated as non-concessional contributions in addition to regular non-concessional contributions.
  • Super contribution is calculated on pre-salary sacrifice salary.
  • Regular contributions are in today's dollars and are fixed each year.
  • Regular contributions you make are deducted from your income.
  • Additional before-tax contributions for older individuals are in addition to other before-tax contributions (super contributions are salary sacrifice contributions).
  • Regular non-concessional contributions are not limited to the annual non-concessional limit. If you have a superannuation balance over $1.6 million you will no longer be able to make non-concessional contributions.
  • Penalty tax will apply on excess one-off and regular non-concessional contributions.
  • The current non-concessional contribution (NCC) limit, including any bring-forward provisions, for individuals is used in the calculation. The NCC limit is available from the Australian Taxation Office website.
  • Regular before-tax and after-tax contributions in excess of 100% of salary are assumed to be made from other assets.
  • The current concessional contribution (CC) limit for individuals is used in the calculation. The CC limit is available from the Australian Taxation Office website.
  • Regular contributions end at the earlier of retirement and age 75.
  • One-off contributions are funded through other assets. It is assumed that any one-off contribution you make comes from a source other than your employment income, e.g. an inheritance or the sale of an asset.
  • One-off contributions are restricted to any contribution limits.
  • If you elected to make a one off contribution, it is assumed that you make this one-off contribution on the next 1 July or within 12 months of today's date.
  • Co-contribution is payable if your income is under the current threshold and you make a non-concessional (after-tax) contribution. The threshold is available from the Australian Taxation Office website.
  • Co-contribution is not payable if the individual does not earn a salary.
  • The minimum co-contribution of $20 is not applicable.
  • We assume that you qualify for the Government Co-contribution if you make after-tax contributions and are below the income limit. The total income used to determine if you qualify for any Co-contribution is equal to your annual salary before tax and any reportable employer superannuation contributions.
  • No allowance has been made for the effect of reportable fringe benefits on the Government Co-contribution or Medicare surcharge.
  • For each projection year prior to 2018 in which it is assumed you or your employer would make a concessional contribution, your eligibility for the Low Income Superannuation Tax Offset (LISTO) is assessed and a LISTO is added to the projected superannuation account if applicable. It is assumed you meet the other LISTO eligibility criteria.

Timing

Cash flows are assumed to be in the middle of the year, except:

  • One-off contributions (beginning of the year)
  • Retirement lump sum (beginning of the year)
  • Retirement income (starts at the beginning of retirement age year)
  • Co-contribution (end of the year)

Salary increases continuously (i.e. contributions in the first year are based on salary increased by half a year's inflation).

Rates and Indexation

  • All rates and thresholds are current as at 1 July 2017.
  • Illustrations are in today's dollars which means they are deflated (adjusted) for inflation.
  • Deflator is assumed to be 3.5% per year. This is the rate used to bring the calculator outcomes back to today's dollars and is comprised of expected increases in living costs and expected increases in living standards. If you prefer to use a different rate, enter it into the Advanced Assumptions in the Retire Ready Calculator on the Fund's website. You cannot select a value greater than 10% per year. This limit is in place to ensure the calculation in "today's dollars" is reasonable.
  • Salary is indexed to the salary growth rate of 3.5%. If you prefer to use a different rate, enter it into the Advanced Assumptions in the Retire Ready Calculator on the Fund's website. You cannot select a value greater than 10% per year.
  • Concessional contribution caps are subject to indexation.
  • Tax rates are not indexed.

Tax

  • Fringe benefits have not been allowed for.
  • Any payments made to the individual are gross of tax. Personal income and capital gains taxation is ignored. Income required in retirement is assumed to be before tax.
  • Only contributions tax is taken into account.

Life Style

The figures we have quoted for the respective lifestyles are based on the ASFA Retirement Standard which benchmarks the annual budget needed by Australians to fund their retirement. Whilst this is a useful guide for many individuals and couples, the amounts quoted may not hold for those who were previously on higher incomes (i.e. salaries greater than around $100,000).

There are five defined lifestyles based on the ASFA Retirement Standard:

  1. Aspirational: retirement income of $76k + per year
  2. Premium: retirement income of $53k - $75.9k per year
  3. Comfortable: retirement income of $43 - $52.9k per year
  4. Modest: retirement income of $30k - $42.9k per year
  5. Basic: retirement income of less than $30k per year

These dollar amounts may not be suitable for you, especially higher income earners who should assume they need 67% (i.e. two thirds) of their pre-retirement income to maintain the same standard of living in retirement. [Source: ASIC's Money Smart website article "How much is enough?" last updated 30/05/2017].

Transition to Retirement

For members over age 50 you can select a Transition to Retirement (TtR) Strategy. This assumes:

  • When you have reached your preservation age you will start a TtR pension.
  • The amount used to start your pension is based on the amount in your account, the amount you would need on commencement of the TtR strategy at preservation age, a configurable percentage of your account (in this section called your super account) is transferred into a TtR pension (i.e. a pension account).
  • It is assumed you salary sacrifice as much as possible (taking into account current contributions and contribution and withdrawal limits) into your super account and withdraw an amount from the pension account to enable your take home pay to remain the same while increasing the contribution made to your super account.
  • You use the TtR strategy in the first year you are eligible.
  • The TtR pension is implemented once only and is not implemented each year.
  • The calculations are based on the current tax free proportion of your super account.
  • Investment earnings in a TtR pension will be taxed at the same rate as an accumulation account.

Preservation Age Table

Date of Birth Preservation Age (Years)
Before 1 July 1960 55
1 July 1960 to 30 June 1961 56
1 July 1961 to 30 June 1962 57
1 July 1962 to 30 June 1963 58
1 July 1963 to 30 June 1964 59
1 July 1964 to 30 June 1965 60
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