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What’s life really like on the age pension?


Published 09 January 2019

Life on the age pension probably isn’t the life you have in mind when you dream of retiring, writes Sally Patten.

Think you could manage on a little over $900 a fortnight? That’s what a single retiree who qualifies for the full government age pension receives – $907.60 a fortnight, or $23,597 a year.

For a couple it’s $1368.20 a fortnight, or $35,573 a year. And these figures include the maximum pension supplement and the energy supplement.

So it’s not surprising that Mima Rahaman, a senior financial adviser with Thinkwealth Management, describes life on the age pension as “tough”. Patrick Canion, chief of financial planning firm ipac Western Australia, is a little blunter: “It sucks.”

Rahaman is upfront with her clients about the need to take financial responsibility for their own retirement: “I advise all [of them] to maximise the amount of money they save for retirement so they don’t need to rely on the age pension.”

Canion agrees that relying on the age pension alone is not advisable. “You can make do from week to week,” he says, “but when big items come along you can really struggle. For example, if the fridge packs it in, or your shoes need repairing, often you’ve got nothing to fall back on.”

But if the age pension alone is inadequate to live on, how do we work out how much we might actually need in retirement?

How much retirement income is enough?

The Association of Superannuation Funds of Australia (ASFA) creates estimates of the annual income required by both single people and couples to provide for either a ‘modest’ lifestyle or a ‘comfortable’ lifestyle in retirement.

Its latest estimates, for the September 2018 quarter, ASFA suggests that a single person of retirement age (around 65) needs an annual income of $27,595 to provide for a 'modest' lifestyle, while a couple needs $39,666. (For older retirees these amounts are slightly lower.)

You might be thinking that those figures aren’t much higher than the age pension, so perhaps the age pension is not so bad after all. But then, what exactly does a ‘modest’ lifestyle include?

Well, as it turns out, not a great deal.

A ‘modest’ v a ‘comfortable’ retirement

ASFA's budget for a modest retirement lifestyle for a retired couple aged 65-85 covers the following expenses a week:

  • $50.34 on electricity and gas
  • $165.15 on food
  • $92.85 on health services
  • $21.65 on home phone, broadband and mobile
  • $46.66 on a domestic holiday.

So perhaps ‘modest’ might more accurately be described as ‘frugal’. There’s not exactly a lot of wriggle room there, either for luxuries or for unexpected expenses.

What about a ‘comfortable’ lifestyle? ASFA estimates that for this, a single retiree will need $43,200 per year and a couple needs $60,843. That’s a lot more than the maximum age pension. And even with this income, a ‘comfortable’ retirement lifestyle is not going to include long overseas holidays or extravagant entertaining.

Most of us probably imagine retirement as a time when we can relax, enjoy life at a slightly slower pace, and spend more time with family and friends. What we don’t want is to be worrying about our financial security.

Whether retirement is a long way into the future or getting close, it pays to look ahead and make the smartest financial decisions you can to boost your retirement savings. Talk to your financial adviser about the best way to do this, whether it’s through investing in your super or other assets.

Budgets for households and living standards for retirees aged 65-85

(September quarter 2018, national)

 

Modest lifestyle

Comfortable lifestyle

 

Single

Couple

Single

Couple

Total per year

$27,595

$39,666

$43,200

$60,843

 

Budgets for households and living standards for retirees aged over 85

(September quarter 2018, national)

 

Modest lifestyle

Comfortable lifestyle

 

Single

Couple

Single

Couple

Total per year

$26,037

$37,154

$40,953

$56,735

 

The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. Source: ASFA

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