On many occasions in the past we have written about aspiring to enjoy a comfortable retirement lifestyle and perhaps, at the start of a new financial year, this is a topic worth revisiting.
As we have mentioned in the past, when speaking about the costs of a comfortable lifestyle, we often refer to the figures published by the Association of Superannuation Funds of Australia (ASFA) in their quarterly Retirement Standard.
Just to recap, ASFA suggests that the budget for a single retiree seeking a comfortable retirement is in the vicinity of $43,250 per annum, and for a couple, the figure is just on $61,000.
When developing these figures, ASFA make a number of assumptions including people are living in their own debt free home and have no other debts.
However, in some circumstances, the ASFA figures need to be modified to cater to specific lifestyle needs including overseas travel, running a second car, and living in a strata-titled residential complex. One or more of these lifestyle choices could add significantly, up to $10,000 or more a year, to costs of living.
How much it will cost to live in retirement is very much an individual thing.
But, is a comfortable lifestyle achievable for people who only have a modest amount of superannuation savings?
The answer is “possibly yes”, however, it will require some lateral thinking.
ASFA, in another body of research, looked at the average superannuation balances of Australians in a range of age bands. Their research suggests that a male aged 60 - 65 has a superannuation balance of $270,000 and a woman in the same age band has a balance of $157,000. These figures were determined in 2015-16 so it can be expected that the figures have increased since then.
For the sake of this exercise, we will assume the average balance for a male is $300,000 and for a female the balance is $180,000.
Based on these numbers and assuming that a couple are of age pension age, they have other assets of (say) $50,000, and their superannuation is invested in an account-based pension drawing the minimum (5%) annual income, they can expect to generate income of:
| Income source | His | Hers |
| Age pension | $10,704 | $10,704 |
| Account based pension | $15,000 | $9,000 |
| Total | $25,704 | $19,704 |
| Combined | $45,408 | |
The income that this couple can achieve from the age pension and their super, while only drawing the minimum prescribed level of income in order to limit the erosion of their capital, is $45,408 per annum. This falls well short of the amount needed to provide for a comfortable retirement.
However, apart from drawing significantly more income from their account based pensions, there are options that may help them achieve their overall income objective:
1. Work bonus
The work bonus has changed from 1 July 2019. An age pensioner is now able to earn up to $300 per fortnight from employment or self-employment without that income being counted under the income test for age pension purposes. This allows a couple who are willing to do some paid work, to generate up to an additional $7,800 each without it affecting their Centrelink pension.
If the couple in the example mentioned above were to continue to earn even a modest amount of employment income, they could almost achieve their targeted income for a comfortable retirement lifestyle by combining their age pension, account based super pension, and some income from employment. This would give them a total income of just on $61,000, thereby meeting their comfortable lifestyle income target.
2. Pension Loans Scheme
As an alternative or supplement to the work bonus, retirees may consider accessing additional income payments under the Pension Loans Scheme. The pension loans scheme is a reverse mortgage-type arrangement funded by the Federal Government. It allows people of age pension age to draw a fortnightly amount of up to 150% of the age pension.
However, the amount drawn is effectively a loan. It is secured against the title they have to real property and is repayable once the property is sold.
While not for everybody, the pension loan scheme may provide additional income to those who are unable to work but need to supplement their income in retirement.
Planning for a financially-comfortable retirement often requires a little “outside the box” thinking and the need to look at options that may not always be apparent.
One of the key things to remember is that in retirement, nothing remains constant. Retirement planning is not “set and forget”.
Having a good financial adviser or retirement coach can be valuable in ensuring you have the best possible chance of achieving your retirement dreams.