A master plan for lifelong prosperity

Age matters. When it comes to your finances, there are endless rules, benefits, tricks and traps based on how old you are. Many rules are confusing and inconsistent. But it pays to be aware of the opportunities available, particularly if you're approaching a significant birthday.

AGE 0-1

Yes, baby, it's all about you. Or about the handout mum and dad get to welcome you into the world. The baby bonus is your introduction to middle-class welfare and if your parents meet the eligibility tests, your birth will deliver them $5437 in 13 fortnightly payments if they claim before September 1, and $5000 after that. Their claim must be lodged no later than 52 weeks after your birth. If you've been adopted, mum and dad are eligible, too - even if you're older. They need to claim 52 weeks from the date of adoption. How's that for an introduction to finance?

AGE 0-18

Your worth to your parents doesn't end with your birth. A range of family-friendly benefits and tax breaks apply while you're dependent on them.

The Family Tax Benefit is means-tested, so if mum and dad qualify, they can expect annual subsidies for keeping you depending on your age.

According to Centrelink, the maximum Family Tax Benefit Part A payment is $164.64 a fortnight if you're aged up to 12, $214.06 for a child aged 13-15 or a secondary student aged 16-19, and $52.64 for a 16-to-17 year old who has completed secondary study. The base rate is $52.64 for each child under 18.

The maximum for the Part B benefit is $140 a fortnight for each child under five and $97.58 if you're between five and 18. Your parents might also be eligible for an additional supplement.

If you're entitled to Family Tax Benefit Part A (or you received a payment that prevented your parents getting the payment, such as the Youth Allowance) your parents will also be entitled to the Schoolkids Bonus, which is worth $410 a year for each child in primary school and $820 for each child in high school. Some 16-to-18 year olds might also be entitled to Youth Allowance (see the next section).

However, being under 18 isn't all fun.

If you receive ''unearned'' or passive income, such as interest, dividends or trust distributions, you're subject to penalty tax rates if your income from these sources exceeds $416.

The director of StrategySteps, Louise Biti, says this doesn't apply if you're between 16 and 18 and working full time.

Biti says that while minors can usually open bank accounts and buy shares, they might not be able to buy investments such as managed funds in their own name until they turn 18.

AGE 18-25

You're an adult, but the welfare taps necessarily don't switch off. If you're still dependent on your parents, they might be eligible for Family Tax Benefits of up to $70.56 for an 18-to-20 year old who has finished secondary study and a 21 year old in full-time study.

You might be eligible for Youth Allowance if you're between 16 and 20 and looking for full-time work or undertaking approved activities; between 18 and 24 and studying full time; or between 16 and 24 and undertaking a full-time apprenticeship. However, parental means tests apply if you are considered a dependant and your own income will be means-tested if you're independent. If you were a 20-year-old job seeker on July 1 and receive Youth Allowance payments, you will remain on Youth Allowance until you turn 22.

You might also be eligible for Youth Allowance if you're 16-17 and need to live away from home to study or are considered to be independent.

Once you turn 25, you might be eligible for Austudy if you're a full-time student or apprentice.

A senior adviser with Westpac Financial Planning, Glenn Calder, says this is also the age when you start to take control of your own finances. Employers are required to make compulsory super contributions for employees aged 18 or older who earn $450 or more before tax in a month. Employees under 18 must meet these conditions and work at least 30 hours a week to be entitled to compulsory super. Calder says it's worth thinking about where your super is invested. ''The typical balanced fund is completely inappropriate for someone in their 20s,'' he says. ''For them, markets crashing is the best thing that could happen to them because each dollar being contributed is buying more assets. So long as markets recover by the time they're 60, they'll find they've done very well.''

Calder says young adults also need to take care with debt.

A host of borrowing opportunities open up but this is when a lot of people make their big financial mistakes. ''Just because a bank gives you a credit card doesn't mean you should use it,'' he says.

AGE 30

You reckon you're going to live forever? Welcome to the first hint of your mortality. According to the number crunchers at the health insurers, you have reached the age when you're more likely to cost them in medical expenses. So unless you have private hospital cover before July 1 following your 31st birthday, it's going to cost you more.

If you buy insurance later, a 2 per cent loading will be charged on top of your premium for every year you are aged over 30.

The maximum loading of 70 per cent applies to people who don't take out insurance until they're 65. On the plus side, once you have paid the loading for 10 continuous years, it will be removed as long as you retain your hospital cover.

Calder says your 30s are also a time of high financial risks.

This is the time when a lot of people are tied up with a mortgage and the cost of raising children. The last thing you need is another expense, but he says this is when people are most vulnerable if something goes wrong, so thought should be given to life and income-protection insurance.

Ideally, as you get older and more financially secure, the insurance can be wound back and the money directed to investing. Calder says once you hit 40 you should think about developing a passive income that can cover your living expenses once you stop working.

AGE 50

Uh, oh. It's that milestone birthday.

The grey hairs are showing and you are constantly reminded that retirement is looming. To make matters worse, the government has just taken away a concession that allowed people aged 50 or more to contribute extra money to super. For the next two years, at least, you'll be limited to the same $25,000 cap on concessional contributions that applies to an 18 year old.

Biti says that if you haven't done it already, now is the time to give some serious thought to building your super.

AGE 55

And this is why. If you were born before July 1 1960, 55 is the age at which you can access your super. This is what's known as your preservation age. The preservation age will be gradually increased to 60. The increased ages are:

❏ 56 if you were born between July 1, 1960, and June 30, 1961;

❏ 57 if you were born between July 1, 1961, and June 30, 1962;

❏ 58 if you were born between July 1, 1962, and June 30, 1963;

❏ 59 if you were born between July 1, 1963, and June 30, 1964;

❏ 60 if you were born after July 1, 1964.

However, reaching this age doesn't automatically entitle you to your super.

Biti says you have to permanently retire or start a transition-to-retirement pension, which gives you an income stream while you're still working.

She says taking your money out of super before you turn 60 has tax implications. If you take a pension, she says the income will be taxable, though you'll get a 15 per cent tax offset.

If you take a lump sum, the first $175,000 will be tax-free but you'll pay 15 per cent on anything above that. (People in unfunded super schemes such as public servants, she says, pay higher rates.)

She says while now's a good time to consider a transition-to-retirement strategy, it might not be worthwhile because of the tax payable on your pension income.

''The biggest benefit is not paying tax on the earnings within your super fund,'' she says. ''But you need a reasonable account balance and a good income.''

Tax on redundancy payments also becomes more attractive once you reach preservation age. Biti says these are taxed at 30 per cent on the first $1,255,000 and 45 per cent on any excess if you are under preservation age. But once you reach that age, the first $175,000 is taxed at 15 per cent.

AGE 60

If there's one birthday worth celebrating, this is it. Not only might you become eligible for your state's seniors discount card (NSW requires you to be aged 60 or more and working no more than 20 hours a week in paid employment, and Victoria says you have to be 60 and work less than 35 hours a week), but you now get tax-free access to your super.

Biti says you no longer have to permanently retire to access your super, though you do still have to meet a condition of release, such as ceasing to be employed in a particular job. If you start a pension when you're 59, the head of technical services at ipac Securities, Colin Lewis, says it's worth seeing whether you can afford to hold off your first pension payment until your 60th birthday to ensure the payment is tax-free.

Biti says this is also a good time to consider recontribution strategies, and withdraw a lump sum from your super tax-free and put it back in as a non-concessional contribution. This changes it from part of the taxable component of your super to the tax-free component. If your super is likely to go to a non-dependant such as an adult child when you die, this could save them tax. She says recontributing is also a form of insurance against possible rule changes.

Calder says that if you are still working, transition-to-retirement pensions become more attractive once you turn 60. These allow you to withdraw up to 10 per cent of your account balance tax-free to supplement your income, or to fund your living expenses while you sacrifice some salary back into super.

Biti says that if you are still working, redundancy payments are treated even better from a tax perspective once you turn 60. If you are genuinely made redundant, you'll pay just 15 per cent tax on the first $1,255,000 of any payout. However, she warns that new rules have increased the tax for all ages on so-called golden-handshake payments, when you leave your employer and it is not a genuine redundancy.

AGE 65

For men, your 65th birthday gives you access to the age pension, provided you pass the assets and income tests. For women, Biti says the pension age is still a bit younger. It is 64½ but will rise to 65 on January 1, 2014. Reaching age pension age also has other benefits.

If you qualify for even a small part-pension, Biti says you are eligible for the Commonwealth Seniors Health Card, which provides valuable discounts on medications and other expenses.

If you have been keeping money in the accumulation phase of your super fund to maximise other Centrelink benefits, Biti says you may want to start a pension because this money is no longer exempted from the means tests once you reach pension age.

If you're not eligible for the pension, Biti says you will qualify for the seniors and pensioner's tax offset, which increases the level of income you can receive before paying tax.

She says you can also access your super unconditionally; you don't have to leave your job to get your hands on the money. But on the downside, new limits will apply to your contributions.

Lewis says once you turn 65, you have to meet a work test before you can make further super contributions.

This requires you to have worked for 40 hours in a consecutive 30-day period during the financial year.

But this is where it gets confusing. He says the limits on how much you can contribute are based on your age at July 1. From age 65, you are limited to non-concessional or after-tax contributions of $150,000 a year. You are no longer eligible to ''bring forward'' the next two years' contributions to make a one-off contribution of $450,000. But if you're 64 on July 1, Lewis says you are eligible to use the bring-forward rules - even if you turn 65 later that month.

''Before you turn 65, you need to think about what you have in super and what you want to put in so you can get the timing right,'' Biti says.

If you are eligible for the private health insurance rebate, you'll also get a bigger tax offset once you turn 65.

The maximum rebate rises from 30 per cent to 35 per cent once you turn 65.

The minimum income you are required to take from your retirement pension also increases with age.

The minimum drawdown is 3 per cent if you are under 65, and 3.75 per cent if you are between 65 and 74.

However, Biti says one negative about turning 65 is that you no longer qualify for a tax-free amount in a redundancy payment, so if you are likely to be made redundant, you might want to talk to your employer about receiving the payment before you turn 65.

AGE 70

Biti says the spouse super tax offset (which gives a tax break to people contributing to a low-earning spouse's super account) no longer applies after the recipient's 70th birthday. The popular super co-contribution can no longer be claimed in the year you turn 71. So you have to be 70 on June 30 to get the co-contribution for that financial year. The government has recently changed the rules to allow older workers to continue to receive compulsory super contributions beyond age 70. Once you turn 70, your maximum private health insurance tax rebate increases again to a maximum level of 40 per cent.

AGE 75

Lewis says that while you can continue to receive compulsory super contributions, you can no longer contribute to super after 75.

To be exact, your final contribution has to be made within 28 days of the end of the month when you turn 75. So if you turned 75 in June, you'll need to contribute by the 28th of this month.

The minimum amount you are required to draw down from your pension also increases. From 75 to 79 it is 4.5 per cent; from 80 to 84 it is 5.25 per cent; from 85 to 89 it is 6.75 per cent; from 90 to 94 it is 8.25 per cent; and once you turn 95 it is 10.5 per cent.

If you haven't done it already, this is also a good time to think about matters such as estate planning.

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