Make sure your money lasts

The most outstanding feature of Australia’s retirement income system has to be its complexity. During their working lives most people have managed just one source of income – their salary. If they have investments, this money typically adds to savings.

But in retirement many new sources of income open up – namely the Age Pension, superannuation, equity release products perhaps combining with a reduced or casual salary. Suddenly you are confronted with a much more complex challenge than when you worked full time.

How do these different contributions and income streams combine? And how do you take action on one, without adversely affecting another? For instance avoiding what happened to Anna when she downsized her home to free up some cash, but lost her Age Pension as she then failed the assets test.

It can be difficult, but it can also be possible to maximise these different income streams, by knowing the rules and using them to your advantage.

To help you do this, today is the first of a 4-part Securing your retirement series.

This series will share an overview of the five key retirement income sources, and then detail the strategies attached to each of these sources so you have a clear idea of how best to manage your mix of retirement income support.

As always, in order to know where you are going it’s helpful to understand where you’ve been, where you are right now and then what the future could look like. So first some context to the ways that retirement can be funded in Australia.


Governments and policy makers can often use complex language when referring to retirement income. A long-time favourite term is the three ‘pillars’. This refers to the three major income supports for retirees, namely:

  • The Age Pension
  • Superannuation
  • Private savings/investments

But as with many societal constructs, retirement has changed radically in the past two decades, and referring to this somewhat outdated way of thinking is not helpful for the current generation of retirees whose main concern is how sustainable their savings are.

The team at Retirement Essentials strongly believes that ‘three pillar’ thinking is now largely outdated. Today’s retirees actually have between one and five pillars upon which they can draw in order to finance the final 25- 30 years of their life.

These are:

  • The Age Pension
  • The primary residence
  • Superannuation
  • Savings and investments
  • Work income.

In theory you will derive income security from at least one of these pillars.

And yes, you may even have access to all five. Click here to take a quick poll on how many you will access.

But having access to a multitude of income streams or sources can often feel burdensome, unless there are clear guidelines on ways to make these different pools of income work well together. Welcome to the ‘big juggle’! the good news is that this juggle can be made much more manageable. Let’s start with a brief explanation of the key features of the five pillars, and the key points about how they interact with other pillars.

1: The Age Pension

This is the most secure form of retirement income – and the most common. About 70% of
Australian retirees receive a full or part Age Pension. It is means tested, so these retirees have met the thresholds for income and assets. If they were over either threshold they would not have been eligible.

As well as a base rate, paid fortnightly, eligible pensioners also receive supplements and may be entitled to rental assistance. A Pension Concession Card (PCC) is automatically awarded. This card is valuable as it offers prescription medicine and medical services discounts, energy discounts, travel discounts and other useful financial gains.

Key features which affect other pillars:

  • A work bonus means pensioners can earn up to $7800 per annum without penalty.
  • The family home is exempt from the means test
  • Not all income streams are assessed in the same way, so some are more useful for pension retention than others

2: The primary residence

Having your own home when you retire greatly enhances your independence and choices. About 85% of retirees do own their own house or unit. It may be that you are or were one of the 64% of retirees who entered retirement without a mortgage. Those who do still have a mortgage will be faced with the decision of whether to use payouts (such as super lump sums) to reduce the mortgage at some stage. This is not always the best strategy which we will discuss in more detail in two weeks’ time. With interest rates on the rise you may facet a further juggling act to cover repayments now that you are living on a fixed income.

Key features which affect other pillars

  • The exemption from the assets test for the Age Pension is a critical consideration when using money to pay down mortgages, renovate or sell.
  • Using superannuation to reduce a mortgage in retirement can have upsides and downsides – getting rid of interest repayments is not the only factor at play here.
  • Using equity in the family home is becoming increasingly common.
  • If you need to enter an aged care residence the ownership of a home has financial implications for your contract
  • Ageing in place (i.e. living your final years in your own home and community) has been shown to have strong health benefits which may outweigh other financial gains.

3: Superannuation

Although compulsory super was introduced in 1992, it is a mistake to believe that everyone heading into retirement will have a sizeable balance by now. Whilst our Superannuation Contribution Guarantee (SGC) has greatly enhanced retirement savings for most of the population, many retirees still do not have any super, and the gender gap remains. The most recent Australian Bureau of Statistics data (Retirement and Retirement Intentions 2018-19) shows that only 49% of men and 27% of women currently retired have superannuation.

There is clearly some catching up to do. The challenge of managing superannuation savings normally occurs when you reach preservation age and start to draw down your super.

Key features which affect other pillars:

  • Super is not a ‘thing’ but a financial structure with many tax advantages
  • Withdrawing lump sums can seem appealing but deciding how much to withdraw – i.e. how to pay yourself – is one of the most important retirement decisions you can make
  • Super savings are ‘deemed’ by Centrelink as part of your income eligibility assessment
  • As well as drawing down super, you might also keep working and contributing. Often done as a Transition to Retirement (TTR) strategy, the rules need to be observed.

4: Savings and investments

Private savings and investments (i.e. those outside your superannuation) might include cash, savings accounts, property, shareholdings, bonds, and loans to companies. Many self-funded retirees may hold a range of such investments.

Key features which affect other pillars:

  • Almost all of such investments will be deemed by Centrelink as either income or assets should you apply for an Age Pension
  • Balancing the mix of private investments versus superannuation and perhaps mortgage repayments can be challenging. Sometimes funds which seem to be provide a good return might be better used within another pillar.
  • At times some investments can have a long run of poor returns (e.g. savings accounts or shareholdings) and it is important to know when to stay or when to go.

5: Work income

It is becoming increasingly common for retirees to step in and out of the workforce. With increased longevity, many people wish to continue to engage and contribute much later than the old retirement age of 65.  But there is a cap to the amount you can earn and receive an Age Pension.

Key features which affect other pillars:

  • The Centrelink work bonus allows up to $7800 per annum before your fortnightly payment is reduced
  • All workers are now entitled to the SGC (employer super contributions) so you will need to understand how money earned might affect your super balance.
  • Benefits of work are well documented – you may need to weigh up non-financial benefits if there is a clash with rules associated with another pillar of income.

This is just a brief overview as the first of a four part series on securing your retirement future.

We hope this explanation of the five pillars or major options in retirement will help you more fully understand your own retirement income sustainability and that it will get you thinking about the options you have to stretch your savings.

Next week we will explain the Age Pension system and share the things you may not know which can enhance your eligibility – or increase your current payments.

The most important pillar for most people is the Age Pension so make sure you are getting what you are entitled to receive.


Check Your Entitlements