News and Articles

Being told unrealistic targets is hardly likely to motivate anyone at any age. Yet this is often the case with retirement savings targets. Today we take a more realistic approach by using the factual ‘middle’ savings amounts for those about to retire, to demonstrate how quite modest savings can last the distance. Why is this important? The most commonly quoted targets for retirement spending and saving are those published quarterly by the Association of Super Funds Australia (ASFA). Much attention is paid to the so-called ‘comfortable’ amounts. The most recent targets (2023) are: Couple: Annual spend (early retirement years) $72,663 (reduces to $67,050 after 85) Savings required (at retirement) $690,000 Singles: Annual spend (early retirement years) $51,630 (reduces to $48,075 after 85) Savings required (at retirement) $595,000 But very few retirees achieve these levels of savings by the time they enter retirement. There has also been a steep increase in the number of Australians retiring with debt, many with sizable mortgages. That’s why the median savings levels are much more useful indicators of how people will manage their savings across their full retirement journeys.

When an entitlement such as the Age Pension has been in place for more than a century, it’s tempting to assume that the rules are well-known and easy to follow. Not so, unfortunately. Every day the Retirement Essentials Customer Services Team hears from retirees who either didn’t know about rules or didn’t thoroughly understand them, much to their financial detriment.

As you know the team at Retirement Essentials is dedicated to helping to make things as easy as possible for those who are planning for or living in retirement. Today we share a summary of five aspects of Age Pension eligibility that continue to confound applicants and result in lower fortnightly payments. These mistakes run the gamut from timing, reporting, complexity of the means test and partner rules to how to value your assets.

As you no doubt know the income and asset limits for full and part-Age Pensions were increased on 1 July this year. This is good news for many Australians who may have almost qualified for the Age Pension. It also means a slight increase in payments. This is because a ‘taper rate’ is applied to both income and assets over the threshold for a full Age Pension while still below the cut-off points. This makes it timely to step through an explanation of how taper rates work, so that you can ensure you are receiving your maximum possible income.

What are taper rates?

Around 2.6 million Australians are currently receiving either a full or a part-Age Pension. 

Regardless of which pension you receive, your eligibility is based upon a means test. This means test is two-part, requiring that both your assets and your income are below a certain amount. You cannot comply with just one half of the test and whichever test has a less favourable result is the test by which your payments are defined.

Over the last few weeks we have received lots of comments and questions from customers wondering how their partner’s age and working arrangements can affect their entitlements. So this week we are going to answer some of those questions. I am 67 and retired but my...

The good news about Centrelink is that, as an agency of Services Australia, it is held accountable. The mechanism by which this occurs is through frequent Senate Estimates Committees which scrutinise Centrelink performance and its key indicators. This scrutiny is important as Services Australia receives $5.6 billion to manage the timely payment of support to many millions of Australians in need. 

Here’s a brief snapshot of the magnitude of the task it faces, from its most recent annual report (for the financial year 2022-2023):

$5.6 billion budget

$140.3  billion in Centrelink payments made 

9.5 million (Centrelink) customers

41.3 million calls received

10 million face-to-face interactions

In previous articles, we’ve talked about how it’s tough to plan your retirement due to uncertainty about future investment returns…and inflation.  In Part 3, we showed how the amount you can spend depends on what you earn on your investments. Problem is: no one knows what investments will earn in the future.

So Principle 6 for retirement spending is:  You need to be prepared for a range of outcomes.

Surprisingly, most financial advisers act as though they know what’s going to happen in the future.  They  give you a projection of your ability to spend based on an assumed rate of return over the next 25 or 30 years.  It’s a bit of a “pretend game” – let’s pretend we know what the return will be.

But while the assumption used might be a reasonable estimate, actual rates of return will be different…and perhaps by a lot.

The reality is that investment returns vary significantly, and unpredictably, not just year by year but decade compared to decade.  We can see that by showing the returns in past decades.  This chart gives the annualised rates of return for 4 major asset classes in each of the decades since the 1970s and the 1920s so far.

There are two major problems with the Age Pension income test. Firstly, the limit on how much you can earn is too low for retirees who are seeking ongoing meaningful workplace engagement. And secondly, the rules are now so complex, applicants for an Age Pension often find them downright incomprehensible. 

Is the system working? Not as well as it could. 

How to fix it seems relatively straightforward – here are three different approaches.

Even if you don’t get it yet, the Age Pension is key to retirement  planning for most people in Australia.  Over half of older Australians get more than half their retirement income from the Age Pension.  And 80% of people are expected to be on at least a part Age Pension by the time they’re 80.   It’s a reliable safety net and a guarantee that there’ll always be a basic level of income to support your spending in retirement.  

Last week we promised an update on deeming thresholds. Along with the main income and asset threshold changes on 1 July the deeming thresholds will also be increased. This benefits all those whose assets are deemed to earn income by Centrelink. We have reported previously on the rates which remain frozen until 1 July 2025, but an increase to thresholds will be good news for many retirees.

July 1. It’s one of my favourite times of year. We have passed the winter solstice and the days, albeit still dark and cold (at least down south), are slowly getting longer. And for the financial nerd part of me it is also the start of a new financial year. For some people that is more work and tax returns. But for those on, or nearly on, the Age Pension it often means more money in your pocket.  

This year is no different. The new Age Pension thresholds have been announced which means some people will get a little more money while some that didn’t previously qualify might just scrape in. And just scraping in by a dollar can mean a lot as you can qualify for the pension and energy supplements as well as the Pension Concession card.