Age Pension Save for Rainy Day

Can Age Pensioners ever save?
This is a topic that comes up a lot. Because the primary source of income for nearly 70% of retirees is a full or part Age Pension, the ‘liveability’ of the pension is of critical importance. 

But one Age Pensioner may bear little resemblance to another.

With nearly 2.6 million Australians aged 65 and over receiving a pension, there is a wide spread of economic circumstances.

Despite this, retirees across the board are often told about the importance of having ‘rainy day’ money. The ideal amount, according to some financial experts, is the equivalent of at least three months’ income. Let’s say you are a couple and your earnings are split between a part Age Pension and a retirement income stream, totalling about $60,000 per annum. This represents a fairly ‘typical’ retiree couples’ income. But at $5000 per month, this means that you will need $15,000 to satisfy the above ‘rainy day’ target.

If we apply this same principle to a single retiree on a full Age Pension, they would need to have $7128 in rainy day funds, based upon entitlements of $1097 per fortnight or $28,514 per year.

This sounds a lot to stash away when you’re on just $28,514 per annum, doesn’t it? Which set us to thinking about whether people on a full Age Pension can save at all.

This article doesn’t promise solutions; it’s offered as a thought starter and a chance to raise ideas. Retirement is as individual as you are and so the assumption that someone can save as much as someone else is unrealistic. One person may be facing multi medical challenges or helping out other family members. Another may be living rent-free and much more able to save.

What is possible?

Let’s instead look at some ways those on an Age Pension can and do save. We’re concentrating our attention on singles on a full Age Pension as they represent the group with the strictest income limits. We’re also inviting you to add to these thoughts and help other members of the Retirement Essentials’ community to make more of less!

Could Sam save more?

Situation: Single homeowner on the full Age Pension
Total income, including supplements, $28,514 per annum 
Benefits: automatic Pension Concession Card, conservatively worth about $3000 per annum
Other savings, including medical and pharmaceutical due to above concessions, state government assistance (normally through a seniors card), including discounts on transport, energy concessions and rates. 
Entertainment costs can also be reduced using seniors’ clubs or discount cards, or choosing activities (meals, concerts and films) on designated seniors’ days.
Work – Sam can benefit from the increased Work Bonus income credit of $11,800 to add to his savings, assuming he can find suitable work
Comparing costs – using comparison sites and Apps for fuel, grocery shopping, utilities, credit cards, bank account interest, and insurances mean Sam can trim his outgoings as much as possible. 

How can Sue save as a renter?

Situation: Single, renting on full Age Pension
Total income, including supplements, $28,514 per annum 
This is a tougher challenge, as it is likely that Sue will be spending up to 40% of her income to cover housing costs. She will qualify for Commonwealth Rent Assistance (the maximum amount is currently $184.80 per fortnight), but this still leaves a big hole in her weekly earnings.
As with Sam, Sue can also access the Pension Concession Card, seniors’ discounts and use the same opportunities including the Work Bonus, cost comparisons etc. 
She might also review her situation and see if there is any opportunity for house sharing or for occasional house sitting opportunities. There are no easy answers here, the situation for singles is tough. It is even tougher for females, with single Australian women over 60 as those most likely to live in poverty (less than $30,000 per annum)

Thinking about wants versus needs

This is where the discussion gets tricky. Two of the Retirement Essentials’ team have single mothers on the Age Pension, both of whom save. One is a homeowner, the other lives in an Age Care residence. In their early 90s, they are of the so-called ‘frugal generation’. There’s a reason for this – both of them record every outgoing in an old fashioned notebook. They can tell you exactly what they spend, when and on what. Don’t laugh – it works for them. They are also very clear about the difference between what they need and what they might want, but don’t buy. This doesn’t work in every situation but neither of them have ever maxxed out a credit card and had to face the consequences. They simply know what they can afford up front.

What can all retirees do to save more?

Here’s a useful four-point checklist to help you review your own actions and expenditure to see if you could achieve more ‘rainy day’ funds:

  1. Check your entitlements – again and again. As your situation changes so can your earnings and assets. Make sure that you are not missing out on any benefits or higher payments you may be owed
  2. Consider a switch from credit cards to debit cards. Not only can you not spend more than you have, but you will also probably reduce the percentage fees that credit cards seem to automatically attract. For this reason paying bills by Electronic Funds Transfer (EFT) is also often cost effective.
  3. Can you do some project or ‘gig’ work? Such jobs might be child minding, gardening, electoral work, bookkeeping, mentoring – the list is endless. You’ll need to know how much you can earn if on an Age Pension, but you can earn a lot more now without threatening your entitlements
  4. Self-funded retirees can apply for a Commonwealth Seniors Health Card to ensure they, too, receive the available medical, transport and energy discounts.

Knowing your entitlements is the first step to maximising them. Retirement Essentials offers two easy ways you can keep on top of these tasks.

Firstly, you can check your status using the free Age Pension Entitlements Calculator at any time.

And if you think you may need some further guidance to make sure you are receiving everything you could get, the Maximising Your Entitlements consultation can help you quickly review your situation.

What’s your ‘secret sauce’?

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