Improving your income in retirement is a bit like renovating a home. You may have a home already but it’s not everything you want it to be. So you start work to build something better. Just like with a renovation there will be a number of steps to go through when seeking to improve your income in retirement. At a minimum you need to make sure the foundations are strong, and then perhaps look at adding on extras that can really make a difference to day to day quality of life.
So how might we think about the foundation, and the extras, for your retirement income?
- The age pension is the foundation for most people. If you are eligible, or likely to be in the near future, you want to get that in place as the first order of business
- The extras will come from super and any other investment you might have as well as the family home if you are fortunate enough to own your own home.
Why is the age pension the foundation?
Most Australians will rely on the age pension at some point in retirement. Even many self funded retirees typically find that as they spend down some of their savings they start to become eligible for a part age pension as they get older. In fact, while just under half of Australian retirees receive some age pension at pension age, 80% will receive some at age 80. It’s a key foundation and it is a safety net for most retirees
For most people the Age Pension will also grow throughout their retirement. It will grow:
- with inflation, and
- as their other assets decline – eg as they spend down their assets to fund their retirement.
The Age Pension is also extraordinarily valuable. For a single person you would need an investment portfolio of around $500,000 to generate the income the full age pension provides for a single retiree over their retirement. For a couple you would need around $800,000. Even for someone who’s only entitled to a small pension at age 66, its current value could still be hundreds of $000s.
So the age pension is a valuable and important foundation of your retirement income but most retirees have opportunities to add to it. Over the next couple weeks we will talk more about doing that, starting next week with the role of super and other investments.
If you want to check your current or future pension entitlements you can do so on our eligibility calculator which you can find by clicking here and as always you can give us your views by commenting below.
I am looking at restructuring my SMSF which is in pension phase to maximize income and possibilities of being eligible for pension.
Hi Michael. There are definitely things that some people can do to change their eligibility status for the age pension. Depending on your circumstances there can be pros and cons to doing so and as a result we would always recommend seeking personal advice on the matter.
I totally agree with your article but my financial adviser does not agree. I think we need ti discuss with a independent adviser
My wife and I receive approximately $80,000 pension per year
This is made up as follows, full couples aged pension, DVA TPI pension, and carers allowance
My wife will shortly receive a small inheritance which may affect our pension payments
My wife is 61 years old and does not use any of her super I am 72 years old
I understand that she does not have to declare her super in the assets test until she reaches pension age if she does not withdraw any funds
My question is, can I transfer my super balance into her fund to avoid any reduction in our pension
Cheers
Hi Chris. You are correct that the inheritance could affect your pension payments. It might be possible for you to restructure some of your investment assets to reduce the impact. Unfortunately we can’t help you with that at present so I would recommend you talk to a financial adviser about this.
With all the lockdowns how do we get any attempt at contacting Centrelink and even Canberra lockdown. Is anybody at a desk to start?
Hi Penny. These lockdowns are hard work for many of us but Centrelink are still working as is the team at Retirement Essentials if you want to take up our services.
Regards
Hi James, My wife and I are still 5 years from age pension age. We have 2 investment properties we intend to sell between now and then and I’m thinking about moving to a more expensive home once we retire, using all our money on the purchase, and only keeping $350k in super and drawing on the age pension. Is this a reasonable stategy?
Hi Barry. Unfortunately answering your question falls into personal advice territory so I can’t tell you if is is reasonable for you. What I can say is that you home is excluded from the age pension assets test, no matter how valuable, whereas investment properties are included and can reduce your entitlements once you exceed the minimum threshold. This is not the only thing to consider however as your investment properties are likely to be generating an income and potentially capital growth. Those factors and any other financial assets you have need to be weighed up alongside any extra pension you might receive. Any extra age pension income might not offset your investment income for example. For that reason you should talk to a financial adviser who can help determine if it is right for you. The really good news is that you are thinking about these issues 5 years before age pension age which gives you time to restructure your arrangements if that is what you choose to do.
Thanks for the information
Can l apply for a pension
Hi Debbie, we will send you a private email separate to this comment with details on how we can potentially assist you with applying for the Age Pension.
How do we arrange a phone consultation?
Hi Stephen, thanks for your interest in our service! We will send you a private email separate to this comment with details on how we can potentially assist.
Continue to invest in Super or put it in the Bank?
I’m in a predicament as to what to do with the small balance I have in super and how to manage it when I retire on a pension. I had it all planned to invest more into the super before I retired, until I had to give up work due to illness this year.
I am pensionable age in 12 months time; have checked that we fall within the guidelines (assets/house etc) to receive a pension. My husband is already receiving a Pension.
We own our home and have a small amount saved for future expenses. I have $220k saved in Super and the investment fees are competitive.
My biggest worry is should I withdraw the Super on retirement and keep it in the bank (I’m worried that if the market crashes we won’t be able to replenish the lost funds) or leave it in the Super Fund and take an Income Stream (IS)?
If I put it in the bank I know we can manage and work within a budget. If I take all the super balance out will that then attract a deeming rate and affect our pension?
I know I am being a worry wart but who knows what will happen in both future world events & Australian political changes.
Hi Chris. There are pros and cons to leaving your money in super. the tax free income from an income stream is one of the pros. One other factor to remember is that most super funds have a range of investment options you can choose from so you can have your money in a cash account in super if you are quite conservative or take a more aggressive approach. One thing to remember is that once you take the money out of super it is very hard to get it back in so you should get advice on that before making a decision you can’t undo.
In terms of deeming rates I have included a link to Services Australia on this.
Please explain why an income stream is better than keeping money in super and taking out an amount say every month. I am not eligible for the pension.
Hi Meredith. There are pros and cons to having money in an income stream versus leaving it as a lump sum in super. Account based pensions are the most common income streams. With an account based pension once you reach age 60 or older the investment earnings are tax free, whereas they are taxed at 15% in super. You can also choose flexible payment options although you are required to withdraw a minimum amount each year from an account based pension. If you want to know if an income stream is better for you you will need to seek personal advice on the matter. The Government’s Money Smart site also has some further information which you might find useful. Here is a link to their site Money Smart.
We will retire just over the asset limit to receive any pension. Once we retire, do a couple of those trips we have waited and saved all our life for, we would then be under the asset level. Am I correct that we can then apply for a part pension?
Hi Sean, presuming that you meet the other eligibility criteria such as age, residency and income then yes, you can apply to receive a portion of the Age Pension once your assets fall below below the maximum threshold.