Retirement can be a time of uncertainty for many people when it comes to managing their finances. As we age, our financial needs can change. However, there is one benefit that becomes increasingly valuable as we age, and that’s the Age Pension.
The Age Pension is the primary pillar of the nation’s retirement income system, available to those over 66.5 years old (67 after July 1) who qualify for either a full or part Age Pension. It provides a supplement to income earned from other sources, such as super, investments or some part time work in retirement. It also serves as a safety net for those who have not accumulated enough savings to support themselves in retirement.
Because it’s a valuable benefit – the maximum current annual payment for a single is $27,664 and $41,704 for a couple – the Age Pension is subject to strict ‘means testing’ by the government, including the income and assets tests.
One of the key advantages of the Age Pension is that it becomes more accessible as we get older. While around 42% of people are eligible for at least a part Age Pension when they retire, this number increases to 80% by age 80. That’s because, as people age, they are more likely to have lower incomes and fewer assets, which can make them eligible for the Age Pension. If you were still working or hadn’t started to spend down your super, you might be over the income and assets thresholds. But as you get older you’re less likely to be working and you’re probably likely to be drawing down your super to pay for your retirement living expenses.
As savings reduce, payments increase
For those who are already receiving a part pension, the Age Pension can become even more valuable over time. As you spend down your assets, your income derived from superannuation withdrawals may decrease, but your Age Pension entitlements can simultaneously increase. This can help to provide a stable income stream in retirement, which can be particularly important for those who are not able (or wanting) to work or earn income
Here’s how it worked for George
George is 67 and single. With a super balance of $400,000, he estimated that he could spend about $50,000 a year through a combination of the Age Pension and his super drawdown. At the beginning of his retirement, he qualified for an Age Pension that amounted to almost $18,000 per year. But years later, having spent down part of his super, George could expect to get the full Age Pension – almost $28,000 per year.
Keeping up with the cost of living
Another advantage of the Age Pension is that it is indexed twice a year, in line with the Consumer Price Index (CPI). This means that, as prices rise, your Age Pension payment also increases, providing some protection against inflation. In an era when returns on investments are uncertain, the regular increase in the Age Pension can be a valuable source of stability for many retirees. For instance, over the past year, a time of high rises in the cost of living, the Age Pension payment rate has increased by 7.8%. That’s been a big help for many older Australians.
In summary, the Age Pension is an important safety net for retirees, one which becomes increasingly valuable as we age. With eligibility rates increasing and payments indexed to inflation, it provides a dependable source of income that can help increasing numbers of retirees to manage their finances with greater certainty. As the saying goes, some things really do get better with age, and for many Australians, the Age Pension is one of them.
What do you think?
Have you seen an increase in your Age Pension entitlements over time?
Do you agree that this entitlement provides a reliable safety net?
And don’t forget, if you have yet to retire or are ‘almost’ eligible, you can check your eligibility for free with our Age Pension Entitlements Calculator.