So ask yourself this: could you live on your old-age pension?
As of today, the full old-age pension rate for a single person, including all supplements, is $25,677.60 per year. Singles (no dependent children) who rent in retirement are also eligible to receive up to the maximum rental assistance subsidy of $3,790.80 per year (spoiler alert: that’s not enough…)
You are also allowed to do some work and earn up to $300 a fortnight to supplement your pension without it affecting your pay rate, so potentially an additional $7,800 per year.
Asset tests also apply, so if you have more than $250,000 in assets outside your family home as a single person, your pension payments start to go down. However, if you have that amount in super when you retire, you can expect to earn an annual income from those assets of about $12,525, according to Money Magazine calculations.
Most Australian workers will naturally accumulate some pension over the course of their working lives due to the enforced nature of the mandatory pension, so you will likely have something to supplement.
So can you live on the $38,203 (if you have $250,000 in super assets) or $33,478 (if you don’t but still work your maximum allowed) or worst case only the $25,677.60 old-age pension?
I’ve been doing my sums.
I know, for example, that in 2020-21 I spent $88,379.84 in total, clearly above the age pension.
However, I also know that I have incurred several significant expenses that I do not expect to have after age 67.
Upon retirement, I anticipate that I will no longer have a mortgage ($34,244 annual cost) or private school fees ($10,032) or child care fees ($1,692) or spending on toys, games, or pocket money ($953) or dues. union ($689). All told, that’s a whopping $47,610 I can expect to cut from my expenses, leaving me with annual costs of $40,770, assuming no more lifestyle changes.
However, I could also cut some big expenses in retirement, including my gym fees ($3,961) and vacations ($4,579), which would leave me at $32,230. Had she not chosen to live in an apartment block with annual tiered rates of $6,818 (they have since increased), she would have $25,412 in expenses.
My biggest remaining expenses would be food ($5,318), utilities like electricity, internet, and water ($2,583), car costs ($6,637), eating out ($1,394), and health care ($2,787). It’s worth noting that 2020-21 was a year of COVID-19 lockdowns, so my expenses were low. But it’s also worth noting that when you’re older, you get cheaper medicine and travel expenses through concession cards.
So, could you live on the old-age pension? Yeah, almost, I guess. Which shouldn’t be too surprising, given that millions of Australians are doing it.
There is one crucial caveat: I do, in fact, own my home outright when I retire. If I don’t, I’ll face huge ongoing costs that will make the whole thing unsustainable. That’s why owning a home I can live in when I retire is a key part of my financial plan.
So what about you? Can you live on the old-age pension?
If the answer is “yes”, then happy days: you too can feel a great weight lifted off your shoulders.
If it’s “no,” well, then it’s time to come up with a plan to ensure your private savings and homeownership status are positioned to provide you with the retirement lifestyle you want.
If you have no idea, I suggest you track your expenses to find out your expenses.
Either way, your answers will point you in the direction of a better financial future.
- The advice provided in this article is general and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Jessica Irvine is the author of the new book Money with Jess: Your Ultimate Guide to Household Budgeting. She can follow more of Jess’s money adventures on Instagram @moneywithjess and sign up to receive her weekly email newsletter.