Plan for Retirement
Renovating your income in retirement
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.
The age pension is 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. 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 solid foundation and it is a safety net for most retirees
For most people the Age Pension will also grow throughout their retirement.
- with inflation, and
- if they’re not already on the full pension, 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 over 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 by spending from super and savings.
Paying for your spending
In retirement, we need to think a little differently about income. It’s not just salary and interest and dividends and capital gains. It’s the Age Pension if you’re entitled. And very importantly, it’s drawing down your super and savings to pay for retirement. Maybe it’s best to think about it as “retirement funding” not “income.” It’s what’s going to pay for your spending.