Australian Annuity Optimizer

A Monte Carlo simulation tool that helps Australian retirees optimize their superannuation allocation between guaranteed annuities and investment portfolios to maximize retirement income security.

What Does This Tool Do?

This application solves a critical retirement planning question: How much of your superannuation should you allocate to annuities vs investment portfolios?

The tool:

• Simulates thousands of market scenarios using Monte Carlo methods
• Calculates Australian Age Pension eligibility under current Centrelink rules
• Tests different allocation strategies to find the optimal balance
• Accounts for the complexity of Australian retirement income system

How It Works

The Optimization Challenge

At retirement, Australians face a complex optimization problem:

1. Annuities provide guaranteed income but limit upside potential
2. Investment portfolios offer higher returns but with market risk
3. Age Pension provides a safety net but is means-tested
4. Asset and income tests create complex interactions between all income sources

The Solution Approach

The tool uses Monte Carlo simulation to test different allocation percentages:

1. Split your super between annuities (0-40%) and investment portfolio (remainder)
2. Run thousands of simulations for each allocation percentage
3. Model market volatility using historical return patterns
4. Calculate Age Pension eligibility each year based on assets and income
5. Track expense coverage from all income sources
6. Find the allocation with the highest probability of success

Key Australian Retirement Rules Modeled

• Asset Test Thresholds: Different limits for singles/couples and homeowners/renters
• Income Test Rules: Including deeming provisions for financial assets
• Annuity Advantages: Only 60% of annuity value counts for asset test
• Pension Taper Rates: $3 reduction per $1,000 over asset threshold
• Risk Profiles: Conservative (4% return, 8% volatility) vs Moderate (6% return, 14% volatility)

Getting Started

Prerequisites

• Python 3.11+
• uv package manager

Installation

1. Clone or download this repository
2. Install dependencies using uv:

   uv sync

Running the Application

uv run python main.py

The application will start a web interface accessible in your browser. A public URL will also be generated for easy access.

Using the Interface

Input Parameters

Financial Details:

• Total Super Amount: Your superannuation balance available for allocation
• Other Assets: Assessable assets outside super (bank accounts, shares, etc.)
• Other Yearly Income: Income from part-time work, rental properties, etc.
• Annual Living Expenses: Your total yearly costs

Personal Situation:

• Current Age: Typically 67 (preservation age)
• Target Longevity: Age to plan for (consider life expectancy + buffer)
• Relationship Status: Single or couple (affects pension thresholds)
• Homeowner Status: Homeowners have different asset test limits

Investment Settings:

• Risk Profile: Conservative or Moderate investment approach
• Annuity Return: Expected guaranteed return from annuity products
• Allocation Range: Min/max percentage of super to test in annuities
• Simulations: Number of Monte Carlo runs (more = more accurate)

Understanding Results

Optimization Table: Shows success probability for each allocation percentage tested. Higher percentages indicate better chance of covering all expenses through target longevity.

Income Sources Chart: Visualizes how your expenses are covered each year with the optimal allocation:

• Blue (Annuity): Guaranteed income from annuity
• Orange (Pension): Government Age Pension support
• Green (Portfolio): Investment portfolio withdrawals
• Red (Uncovered): Expenses that cannot be covered (indicates failure)

Technical Details

Monte Carlo Methodology

For each allocation percentage:

1. Run 5,000-10,000 simulations with random market returns
2. Each simulation covers your entire retirement period
3. Track success/failure for each scenario
4. Calculate success probability across all runs

Australian Pension Calculations

The tool implements current Centrelink rules including:

Asset Test (as of 2024):

• Single homeowner: $314,000 (full) → $695,500 (cutoff)
• Single non-homeowner: $566,000 (full) → $947,500 (cutoff)
• Couple homeowner: $470,000 (full) → $1,045,500 (cutoff)
• Couple non-homeowner: $722,000 (full) → $1,297,500 (cutoff)

Income Test:

• Applies deeming rules to financial assets
• Single threshold: $60,400 | Couple threshold: $103,800
• Below threshold: 0.25% deemed return
• Above threshold: 2.25% deemed return

Pension Rates (2024):

• Single: $29,754 annually
• Couple: $44,855 annually (combined)

Investment Modeling

Conservative Profile:

• Expected return: 4% annually
• Volatility: 8% standard deviation
• Suitable for risk-averse retirees

Moderate Profile:

• Expected return: 6% annually
• Volatility: 14% standard deviation
• Suitable for balanced approach

Important Disclaimers

1. Not Financial Advice: This tool is for educational purposes only
2. Simplified Model: Real retirement planning involves many additional factors
3. Rules Change: Government pension rules and thresholds are updated regularly
4. Professional Advice: Consult qualified financial advisors for personal decisions
5. Historical Performance: Past returns don't guarantee future results

Technical Requirements

Dependencies:

• pandas: Data manipulation and analysis
• numpy: Numerical computing and random number generation
• gradio: Web interface framework
• plotly: Interactive data visualization

System Requirements:

• Windows, macOS, or Linux
• 4GB+ RAM recommended for larger simulations
• Modern web browser for interface

Example Scenarios

Conservative Retiree (Single, homeowner, $800k super, $40k expenses):

• Optimal allocation might be 20-30% annuity
• Provides pension eligibility while maintaining growth

Moderate Risk Retiree (Couple, $1.2M super, $60k expenses):

• Optimal allocation might be 10-20% annuity
• Balances growth potential with income security

High Asset Retiree ($2M+ super):

• May benefit from higher annuity allocation
• Helps manage asset test for partial pension eligibility

Contributing

This tool can be enhanced with additional features such as:

• Tax optimization modeling
• Healthcare cost projections
• Inheritance planning considerations
• Integration with additional income sources
• Updated pension rule changes

Support

For technical issues or questions about the tool's functionality, please refer to the code documentation or consult with a qualified financial advisor for personal retirement planning guidance.

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Disclaimer: This tool is for educational and planning purposes only. Always consult qualified professionals for personal financial advice. Government pension rules and investment returns can change, affecting actual results.