Three ways retirees can make the most of the stimulus
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The pandemic is a health crisis first and foremost, but it has quickly become an economic crisis as well.
Across the world, countries are going into lockdown or exercising social distancing in an effort to ‘flatten the curve’ of infection. They have closed their borders and shut down ‘non-essential’ services.
Here in Australia, the impact on the hospitality, travel and retail industries has been swift, with more than a million people already out of work. Share markets have fallen more than 30% from their highs in mid-February, and an economic recession now looks almost certain.
Efforts to stimulate the economy
The good news? The Australian government and Reserve Bank of Australia have taken immediate steps to stimulate the economy with a combination of fiscal and monetary policy.
There have already been two rounds of stimulus measures announced to counter the economic slowdown, amounting to around $189 billion, or almost 9% of the Australian Gross Domestic Product.
Here’s how retirees can make the most of the stimulus package.
The main thing for retirees
We know that the share market falls and the economic slowdown are only temporary. We don’t know when things will return to normal, but we know they will. And when they do share markets will recover their lost ground and extend beyond their previous highs.
The main thing for retirees is to preserve enough money invested in the market so that you can participate in the recovery.
First, update Centrelink
The more income you can source from Centrelink at times like this, the better.
It’s likely your investments have fallen in value. The typical balanced super fund has fallen 10 to 15% since mid-February. If your pension is being reduced because of the assets means test, then you’ll get an immediate increase in your pension entitlements when you update Centrelink with your current investment balance.
Those age pensioners who are income tested should receive a pay increase as well. With the falling interest rates, Centrelink deeming rates have dropped to record lows.
Spend the stimulus payments on day-to-day necessities
Age pensioners will receive two lump sum payments of $750 from the Australian government. The first amount will be paid at end March, and the second will be paid in mid-July.
For pensioner couples that will be $3,000 paid into your accounts over the coming months. That is $3,000 you won’t need to draw down from your retirement nest egg just to live.
Make the most of the pension drawdown relief
The government has halved the minimum rate you are required to draw down from your account-based pension this financial year and next financial year. They have done that because they don’t want to force retirees to sell their investments at low prices.
Research shows that four in five of us can differentiate between our financial needs and discretionary wants. Around three in four of us are willing to reduce expenditure on our wants if things go off track in retirement.
If you can afford to, take advantage of the drawdown relief by reducing your account-based pension payments. If you’re being paid monthly you could freeze your drawdowns for the rest of the year and preserve your capital.
Remember, this will pass
Australia is well-placed to weather this storm. We entered this slowdown in fiscal surplus, so we have strong financial buffers to draw on to support the economy. Our banking system is well-capitalised and in a strong liquidity position.
At When Financial Solutions we’re still open for business and servicing our clients. We’re conducting our meetings now by video-conference or telephone.
There’s still a lot you can do to control your financial outcomes in the face of this crisis. Our priority is giving our clients strategies so they can have confidence that it won’t be matter of ‘if’ they will get through these economic challenges, but ‘when’.
Michael Bowman and James McMaster are co-founders of When Financial Solutions. This article is general and does not consider your personal circumstances. If you would like advice specific to you, please give us a call.