Like most developed countries across the globe, Australia has an ageing population. As life expectancy continues to rise, the number of citizens of retirement age keeps getting higher. By 2056, it is assumed that over 22% of the population will be aged 65 or over.
To overcome the economic and ethical challenges associated with this, the Australian government has, over the past few years, pursued a retirement policy which is sustainable and affords all Australians a decent quality of life in their retirement years. And this seems to be working, with Australia ranking favourably in terms of retirement outlooks when compared to other countries.
Read More: Retirement Income – How Does Australia Compare to Other Countries?
With 3 available income streams – the Age Pension, compulsory Superannuation savings, and voluntary private savings – most Australian retirees can afford to live with a relatively high quality of life.
If you’re still considering how important private savings really are, you may be wondering how much you really need to save and if the Age Pension offers enough income to live off of comfortably.
Read More: How Much Money Should You Save for Retirement?
To help you to find the answer to that question, we’ve put together a list of facts and figures about the age pension and what you might be able to afford through this income stream alone.
– When Might Someone Have To Rely On Just The Age Pension?
While most Australians understand the importance of planning ahead for retirement and maximising Super contributions and private savings, some people have to rely on the Age Pension alone. This includes those that were unemployed or self-employed for their working life and chose not to make voluntary contributions towards their Super or private savings, and those that withdrew and spent their Super or private savings in a lump sum early in retirement.
– How Much Will I Receive from the Age Pension?
The maximum Age Pension you can receive is different for couples and single people. As of the 2017-2018 Financial Year, the maximum basic rate you can expect to receive for a single person is $826.20 per fortnight which works out at $413.1 per week. On top of the basic rate, you may be eligible for Pension Supplements and Energy Supplements. After taking these supplements into account, the maximum weekly income is around $453.80 per week.
– How Does That Compare to Average Living Costs?
In order to assess whether or not the Age Pension is enough to live off, it’s worth looking at it in relation to the main costs of living. At its most basic level, this will include at least food, accommodation, transport, and healthcare. The costs associated with each of these living costs will depend on the person, as different people spend different amounts on these things. However, it’s possible to get a reasonably good estimate by looking at previous studies.
The report “New Minimum Income for Healthy Living Budget Standards for Low-Paid and Unemployed Australians” found that the average single Australian adult spends around $62 per week on food. This is based on adults who are spending on a tight budget and doesn’t account for luxuries such as expensive meals out.
The same report found that housing costs more than half of the overall weekly spending and costs, on average, $315 per week for a single adult. This will depend on the location you choose to stay in and the quality and size of the accommodation. But, assuming that this is a good indication of average housing costs, paying for accommodation alone takes up around 70% of the total maximum age pension income that it’s possible to receive.
It also seems that transport costs a surprisingly high amount – even more than food – at around $77 per week. Healthcare averages out at around $7 per week. It’s worth noting that these figures are just estimations and may be significantly higher or lower for retirees. Healthcare, for example, is likely to be much higher for certain demographics, such as retirees, than for younger people.
These four things come to a total of $461, which is already slightly higher than the Age Pension, and that’s not even considering other living costs like recreation, household goods, and bills – not to mention the hidden costs of retirement.
– What About Hidden Costs?
There are lots of hidden costs that might not appear obvious when first planning for retirement. One such cost is your loved one’s inheritance. Many retirees choose to leave behind some of their funds for the financial security of their children or other loved ones. If this is important to you, then you’ll need to account for it in your financial plan. The Aged Pension alone may not be enough to allow you to put aside savings for inheritance, as it’s designed to offer only enough income to cover basic necessities.
The cost of travel is something else you might not have considered. Although travelling to other countries seems like a luxury that you can do without, you might feel that it is important to you when you reach retirement age and have much more free time available to you. It’s easy to underestimate the cost of this as the cost of flights, hotels, and activities can quickly add up. Your Aged Pension may not stretch this far either, so you might need to maximise your Super and potentially start making private savings to fund your retirement travel plans.
Read More: 6 Destinations Where Your Retirement Savings Can Go Further
– What Can I Do To Supplement My Age Pension Income?
Fortunately, Australians very rarely have to rely on the Age Pension alone as it’s relatively easy to put plans in place to generate other income streams. It all starts with setting financial goals for retirement by determining how much you want to spend and how much you’ll need to save to enable you to do so. You can then maximise your Superannuation contributions, start putting aside some of your income into private pension funds, and making smart investments to ensure that you reach your retirement savings goals.
This process can get complicated, and many people will benefit from some professional help when making these important plans for their future. Our team of Private Wealth Specialists here at Ethica can help you to get started with your retirement planning related, financial decisions. Contact us today to book your 2 Hour Free Consultation.