Defer your income until later
When you’re about to retire, you may have the most savings that you’ve ever had up until now. A downturn in the markets can therefore have a big impact on your retirement income. As you no longer work when you’re retired, you don’t have the opportunity to ride out market cycles and earn your capital back.
Lifetime removes this risk by protecting your future income. If you invest now but defer your income payments until you need them, you can grow your future income with investment returns. Because your income is insured, it will rise with positive returns but it cannot fall, even if there is a market downturn.
How much will your income be?
The initial amount of money you invest is called your Protected Income Base. You can invest anything from a minimum of $25,000 to a maximum of $1,000,000.
Your regular, insured income payments are called your Lifetime Withdrawal Benefit. This is calculated from the size of your Protected Income Base and the age at which you begin your income payments.
Your income is a percentage of your Protected Income Base and your rate is based on your age when you decide to take income payments.
If you choose to defer your income, your Protected Income Base will never be less than the amount you originally invested, even if there is a market downturn.
Each year we'll measure the balance of your account against your Protected Income Base. If your account balance has gone up, we'll lock that gain in and your future income payments will rise. If your account balance falls, your Protected Income Base will stay the same. This means your future income can rise with positive returns but it can never fall.
Another benefit of deferring your income is that the Lifetime Withdrawal Benefit rate increases with age, so when you do start receiving income you'll get more. For example, if you’re 63 today but you decide not to take any income until you’re 68, your net Lifetime Withdrawal Benefit rate will increase from 4.80% per annum to 5.30% per annum.
Why you may want to defer your income
If you are 60 today but you decide not to take an income until you’re 67, your net Lifetime Withdrawal benefit rate will increase from 4.50% to 5.20%. Your income will remain at this higher level for as long as you live.
The graph shows that if you defer income payments your Protected Income Base will rise each year with positive investment returns. All increases to your Protected Income Base are locked in and cannot fall. While your account balance will fluctuate with the markets, your Protected Income Base can only rise or remain the same.
I’m 62 and want to invest $100,000, but I don’t want my income until I’m 67.
Your minimum income at age 67 will never be less than $5,200 per annum (or $200 each fortnight) regardless of market fluctuations or how long you live. This is based on a Protected Income Base of $100,000 and a Lifetime Withdrawal Benefit of 5.20% per annum.
However, it’s likely that your income will be higher as positive returns during your deferral period will increase your future income. Each year from age 62, your Protected Income Base will be reviewed and locked in to reflect market growth. However, if the market goes down your Protected Income Base will stay the same. Here's how this might look in a market that drops and then recovers:
At 62, your Protected Income Base is equal to your initial investment of $100,000.
Markets perform well each year from age 62 to 65 and your account balance increases. Your Protected Income Base is automatically increased each year to lock in these gains.
However, there is a market downturn when you are 66, and your account balance falls from $123,000 to $99,000. Although your account balance has fallen, your Protected Income Base and future income have not.
The market recovers slowly in the following year and your account balance increases to $105,000. When you start receiving income payments at 67, your income will be calculated on your highest Protected Income Base of $123,000.
At 67, your Lifetime Withdrawal Benefit rate will be 5.20% per annum after fees and taxes. On a Protected Income Base of $123,000, your income will be $6,396 per annum, paid into your bank account at a rate of $246, every fortnight for the rest of your life.
This case study gives you a detailed example of how Lifetime can help you grow your future income with certainty.
What happens if your circumstances change?
No one knows what’s going to happen in the future, so it’s important that your finances have the flexibility to cope with whatever life throws at you. Lifetime allows you to:
- change your deferral period with little notice
- invest additional sums during the deferral period to top-up your future income
- withdraw your full account balance without penalty
- withdraw up to 20% of your account balance as a lump sum without penalty. Your income will be recalculated to take account of this
- have your remaining balance go to your estate if you pass away
If you would like to find out more about Lifetime we can mail you a free information pack.