There are a number of considerations to take into account when contemplating retirement, or a move to part-time work. If you continue working past Age Pension Age, individuals who scale back their hours often benefit from the gradual transition into life after work. For some, retaining the social support of a work environment can be important psychologically. Equally, a scale back in working hours can give individuals some time to focus on and determine their desired retirement lifestyle, which may include travel, leisure activities and spending time with grandchildren. Getting a taste of retirement, whilst retaining some employment income can help people adjust, prepare for, and be better equipped to enjoy their eventual retirement. Beyond the social and psychological benefits of working past Age Pension Age, there are some interesting financial benefits to consider if you’re continuing work.
Centrelink’s Work Bonus scheme was introduced to provide older Australians with an incentive to continue working and is available to eligible pensioners. If you are over Age Pension Age and receiving a pension, the Work Bonus can allow you to work and have part of your income excluded from an assessment.
So, how does the Work Bonus work?
The first $250 you earn as an employee each fortnight does not impact your Age Pension entitlement. The income you earn above $250, however will be assessed as income and may impact your rate of Age Pension. For every fortnight you don’t earn income, you accumulate the allowed $250. This is added to your ‘Work Bonus Income Bank’. Your balance within the ‘Work Bonus Income Bank’ can accumulate up to $6,500 and this accumulation can be used to offset income from fortnights when you earn more than $250. For seasonal employees this allows your income to be treated in a more equitable manner.
There is no need to apply for the Work Bonus. Centrelink automatically applies the Work Bonus to eligible employment income.
The Work Bonus normally isn’t available to people who are self-employed. It is possible these individuals could qualify, if they run their business through a private company or a family discretionary trust and pay themselves a salary or director’s fee, rather than a dividend or trust distribution.
Other strategies to consider:
If your Age pension and work income is surplus to your cash flow needs, you could consider making additional contributions to superannuation.
Major advantages of this include:
• Tax savings on contributions – Superannuation Contributions tax of only 15% may be lower than your marginal tax rate.
• Tax savings on superannuation earnings are capped at a rate of 15% compared to your marginal tax rate, which may be higher.
If your Age Pension and work income is not enough to meet your cash flow needs, commencing an Account-based Pension after 65 from your Superannuation accumulation may assist. This strategy allows you to commence a regular income stream from your Super. The opportunity also exists for those not yet 65, who may wish to consider a Transition to Retirement Pension.
Whether or not you choose to continue working past Age Pension Age, there are ways to ensure you end up in the best financial position possible for your retirement.