Q I was reading your comments about the pension deeming changes due to hit on 1/1/15.  I am 68, work full time earning $72K.  I salary sacrifice $1600 a month into Super where I have a current balance of $250K.  I own my own home, have about $35K in term deposits and $80k in shares.  I had contemplated working another year before retiring and then hopefully living on a mix of Allocated Pension & part Age Pension.  Would I be better off retiring before 1/1/15 in order to avoid that “deeming” impact.

A Based on your situation, if you retired now you would have investment assets of approximately $365,000 to rely upon to fund retirement.  My calculations do not include other personal assets that Centrelink count in determining your Age Pension entitlements.

Centrelink apply 2 tests to determine entitlements to the Age Pension; the Assets Test and the Income Test.  Whichever test produces the least amount of Age Pension, is the test used.

If you are single, assessable assets above $202,000 reduce your Age Pension entitlement by $1.50 per fortnight per $1,000 of assets.  For couples, the threshold is combined assets greater than $286,500.

Under the Income Test, income above $160 per fortnight reduces your fortnightly Age Pension entitlement by 50 cents for every additional dollar earned.  For couples the fortnightly Age Pension is reduced by 25 cents each for every dollar earned above $284 per fortnight.If you are employed, the first $250 per fortnight of employment income is excluded under Income test.

Prior to 1 January 2015, the commencement value of an Allocated Pension is divided by your life expectancy.  This is referred to as the Non-Assessable portion (NAP) and is not assessed as income for Centrelink purposes.  Provided lump sums (commutations) are not taken, the NAP of Allocated Pension income remains non assessable for Centrelink purposes into perpetuity.

Therefore if you retired now and assuming your allocated pension income does not substantially exceed the NAP from your Allocated Pension, you would be assessed under the Assets Test by Centrelink.

If you delayed retirement by continuing to work for a year, you would have saved approximately $22,000 after tax through Salary Sacrifice and Superannuation Guarantee contributions.  Assuming your assets grew at 8%, you would now have assets of approximately $416,000.

Income drawn from new Allocated Pensions established from 1 January 2015, will be subject to Centrelink deeming rules for the Income Test.  The current deeming rates are 2% on singles first $48,000 of assets and then 3.5% thereafter.  The threshold is $79,600 for couples.

Despite your Allocated Pension being deemed for Age Pension calculation purposes under the Income test, in your case it is likely that the Assets test will still apply.

Under this scenario, your Age Pension benefit would be reduced by approximately $76 per fortnight but you will have substantially more in retirement assets.

There are a few guiding principles that you should apply when looking to maximise your Retirement benefits;  Clearly identify what your living expenses are and fund to that level of income in retirement. Do not overspend, you could be retired a very long time.  Aim to stay in the workforce as long as you are healthy enough and prepared to do so.  This allows your nest egg to continue to grow and delays the drawdown of assets to fund retirement.

In assessing the reduction or “loss” of Age Pension benefits, have a look at the big picture, in the majority of cases you are far better off continuing to work and growing your retirement nest egg.

There are limited exceptions; for those who are right at the limit on the Assets or Income Test and are at risk of not qualifying for a Pension benefit, they will need to examine the scenarios closely.  In all cases it is really important that those of Age Pension age get advice on this matter.

Follow Andrew on Twitter @AndrewHeavenFP. This article was originally published in The Australian.