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As retirement approaches, one of the biggest concerns people have is determining the amount of money they need to sustain a comfortable lifestyle throughout their later years.
Both pension-funded and self-funded retirees in Australia often wonder how much money they can realistically live on per year, while voyeuristically ogling each other in wonder.
As retirement approaches, one of the biggest concerns people have is determining the amount of money they need to sustain a comfortable lifestyle.Credit: Dominic Lorrimer
So let’s explore the average retirement income for Australians and look at the different ways it can be calculated to give you some better insight into how the other half lives.
What do we consider a “comfortable” retirement? A helpful cost of living benchmark prepared quarterly by the Association of Superannuation Funds of Australia (ASFA), shows an average single person needs approximately $595,000 in superannuation before retiring, while a couple requires around $690,000.
These numbers assume that retirees own their homes outright and qualify for a part-age pension. According to ASFA’s budget breakdown, comfortable retirement for couples, combined, equates to an annual living cost of $70,482, while single people require $50,004.
How much do you get on the pension?
For those who rely on the age pension, the numbers differ. Single individuals receiving the full-age pension earn $27,664 per year, while couples receive $41,704, including supplements.
Additionally, pensioners have the option to work and supplement their income up to the temporary work bonus limit of $11,800 annually, without affecting their pension. However, starting from January 1, 2024, the limit will reduce to $7,800 per year.
Calculating the average self-funded retirement income in Australia
The average income for self-funded retirees in Australia is not publicly available, however, we can estimate it by examining the eligibility criteria for the age pension.
To be considered fully self-funded, you must not be eligible for any age pension. Your eligibility for the pension depends on you passing both the assets test and the income test. Fail either of the two and you become self-funded.
The assets test requires couples to have assets less than $954,000 (excluding the family home), while singles must have assets less than $634,750 (excluding the family home).
The income test determines eligibility based on projected ‘deemed’ income from investments, which should not exceed certain thresholds. The income test stops people from drawing a pension entirely once they earn a deemed income of $2,318 fortnightly for single people, and $3,544 for a couple, or when calculated to an annual number, $60,268 for a single person and $92,144 for a couple.
These amounts can be higher if you qualify for the work bonus. It’s also worth remembering the income test is never actually calculated on your actual income from investments.
Using the government’s MoneySmart calculator, we can explore some hypothetical scenarios for self-funded retirees. A single person with a superannuation balance of $750,000 (and a family home owned outright) and no other investments could generate an annual income of $63,546 over a 25-year retirement period from 67 to 92, drawing a part pension from 70.
Self-funded retirees navigate eligibility criteria and make decisions based on their assets, income levels, and fears of outliving their money.
Similarly, a couple with a combined superannuation balance of $1.1 million and a family home could potentially draw up to $95,154 per year over the same retirement period, again drawing a part pension from 70.
ASFA’s data from the 2020-2021 period reveals that the average annual drawdown from account-based pensions, which many retirees utilise, was $19,490 per year. This indicates that most people are using their super as a supplementary income.
So, I’m disappointed to report that there is no real average retirement income for Australians. It really does vary based on each person’s individual circumstances. The benchmarks set by ASFA provide a guide for a comfortable retirement, while the age pension supports those who need it.
Self-funded retirees navigate eligibility criteria and make decisions based on their assets, income levels, and fears of outliving their money. Ultimately, each person’s retirement income is different.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Bec Wilson is the author of soon-to-be-released guidebook, How To Have an Epic Retirement. She writes the weekly Epic Retirement newsletter for pre- and post-retirees at www.epicretirement.net.
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