Where will the money come from when you retire? The answer is not just from super. A combination of your super, rental returns from a property, shares or even a casual job may fund your retirement. But for many Australians the Age Pension and super will provide their income in retirement.
What is the Age Pension?
The Age Pension, if you qualify for it, will likely be a substantial part of how you support yourself when you retire. A recent report showed 2.4 million Australians received the Age Pension.i
In fact, around 80% of Australians over the age of 65 are eligible for either a part or full pension.i For the people who might receive the Age Pension, how they access their super can have a big impact on their retirement. Take this example:
Meet Diana, a single home-owner retiring at 65 with a super balance of $150,000. Diana found out from Centrelink that she can receive the full Age Pension. She could withdraw all of her super at once but doesn't want the responsibility of managing such a large sum of money. Instead, she decides to draw an income from her super to top up her Age Pension entitlement.
Now, let's assume Diana lives to 90. After all, the statistics tell us there's a four in 10 chance she will.ii By drawing an income from her super, Diana could expect an average weekly income of $140 over and above her Age Pension entitlement throughout her retirement. That's a 32.4% increase in retirement income provided by her super.
Drawing an income from your super to supplement the Age Pension can make a big difference to the amount of money you have each week. Have a look at the table below:
The above information in Diana's story is provided to give you an idea of how your super might work with the Age Pension in retirement. To make these calculations, we had to make some assumptions. These are listed for you below:
- Super balance is transitioned to a retirement income account which earns 5.5% p.a. in investment earnings net of investment fees (and tax on investment earnings is nil)
- Retirement income account fees of $1.50 per week and 0.11% of account balance (max $750% p.a.)
- Total income comprises the Age Pension and super drawdowns, and is the level amount the member could receive (in real terms) over the drawdown period
- Payments from the retirement income account are assumed to occur over 25 years and conforms to Government-prescribed minimum drawdown requirements
- Age Pension rates, asset/income test and rules/thresholds as at 23/08/2017
- Assume the member is a single home owner when calculating the Age Pension entitlement
- The Age Pension and total income are assumed to increase each year at 3.5% p.a.
- All results are show in today's dollars by discounting at 3.5% p.a.
- Calculations ignore any non-super assets
Working later, working different, working smarter
Many workers don’t want to give up their 9 to 5 working life just because they hit retirement age. This might be because they’d like to earn a bit more super or they just might not be ready to give up work. Transitioning into retirement through casual or part-time work arrangements with your employer are becoming popular ways of getting more out of your super and ease in to retirement.Learn more about transition to retirement
Myth: Super is the only money I’ll have in retirementMany Australians fear that superannuation is the only source of income they will have when they retire. However, it is likely that they can receive income from a mixture of their super and the Age Pension. As the case study above demonstrates, even small amounts of super can make a big difference to the amount of money you have available to you in retirement.
Myth: I won't be eligible for the Age Pension because of the value of my house
Your primary residence is not counted in the assets test that you are required to complete to determine your eligibility for the Age Pension. So, it’s possible your house could be worth a million dollars and it will have no effect on your eligibility for the Age Pension.
We know that seven out of ten older Australians receive either a part or full Government Age Pension.iii So the chances are you are more likely than not to receive some income from the Age Pension.