There’s an interesting crossover between rising prices and rising job vacancies that may have a major impact on your retirement savings. In the USA the inflation rate is over 6% – the highest rate for many years. Australia is not immune from such increases with many economists tipping inflationary trends next year. The need to cover increased household expenditure means that many older retired Australians may consider dipping their toes in the water again, with part time employment.
This is a very real trend, with the Australian Bureau of Statistics (ABS) reporting a 12% increase in employment of those aged over 65.
It’s true that there are plenty of instances where age discrimination has kept older adults out of the workplace. But a 12% increase year-on-year is proof that older workers are being hired. And this trend is likely to increase even further as the current skills shortages forces employers to recognise the value older workers can bring.
At the time of writing, there were 12,000 unfilled vacancies in general administration. So there is work in this sector if you have the inclination to apply. But what will this mean if you have technically ‘retired’ from the workplace?
First up, if you are self-funded (about 30% of retirees) then you can come and go and earn as much as you please, as long as you pay the tax.
If you are on a full or part Age Pension, the sums are more complex and any extra work could have major ramifications.
Let’s start with the good news.
The work bonus is a Government incentive for pensioners to remain in the workforce. Under the work bonus Centrelink will deduct $300 a fortnight off your employment income and only assess you on your remaining earnings. The even better news is that if you don’t use all the $300 in a fortnight the unused portion accrues up to a maximum balance of $7,800. This balance can be used in fortnights where you earn more than $300. This means on top of the minimum income threshold you could earn an additional $7,800 in employment income in a year before your age pension entitlements start to become impacted.
So for example if Sue has a work bonus accrued balance of $6,000 and earns $1,000 in a fortnight it wouldn’t impact her age pension entitlements. What would happen instead is that she would receive her usual $300 a fortnight allowance and her work bonus balance would drop by $700 to $5,300 to account for the extra income earned that fortnight. If she continues to earn more than $300 her balance will progressively reduce and if she earns less her balance would increase back up to the maximum of $7,800. The work bonus applies to part-time, casual and seasonal work – even self-employment. You cannot use it to offset non employment income and it’s not money you can draw on.
Of course if the income you will earn is likely to exceed the minimum income threshold and the work bonus limits the decision to go back to work can be complicated by the ‘penalty’ applied to earning too much in the eyes of Centrelink.
Yet the workplace can offer so much more than money. It means a break in isolation for some, a sense of purpose for others, the chance to do interesting projects, and the opportunity to upgrade your skills. All of these aspects of work can deliver positive mental and physical health benefits.
Before you jump in and accept a role, it may help to use our free calculator to check out to what extent the expected extra income will affect your current pension. Or to speak to a qualified adviser if any aspect of the net financial gain from returning to work is unclear.