Retirement income can be simply described as your retirement "pay cheque".It will generally come from a number of places and should allow you to pace your income to match your retirement lifestyle.
How will you match your income with your goals?It makes a lot of sense to ensure you'll always have an income to cover your basic needs in retirement and then to have some flexibility around the extras that you'd like to have. This can be achieved by matching your goals with different income sources – each layer serving an important purpose.
Layering your income can help you meet your financial goals in retirement*.
* This diagram is illustrative only and not to scale. It is not a prediction or guarantee of any particular outcome.
Where will it come from?
For most of us, our retirement income will come from a range of sources and will usually take into account the following:
Centrelink Age Pension
Centrelink Age PensionOne of the most well-known forms of retirement income is the government's Age Pension. Whilst many people think they won't qualify, most Australians currently qualify for at least some form of Age Pension in retirement.
How much does the Age Pension pay?
The maximum Age Pension rates as at 20 September 2015 were:
Fortnightly maximum payment Annual maximum payment
The Centrelink Age Pension is only designed to be a safety net – it provides a modest level of income to meet a basic standard of living and there's no guarantee of future amounts.
It's therefore best to maximise the amount of super available from which to draw a retirement income to ensure you lead a more comfortable lifestyle in retirement.
When do I qualify for Age Pension?As the health and lifespan of Australians increases, so has the expectation that we will work for longer. The below table shows the current qualifying age for Age Pension.
Date of birth (Age Pension age) Before June 1952 65.0 1 July 1952 - 31 December 1953 65.5 1 January 1954 - 30 June 1955 66.0 1 July 1955 - 31 December 1956 66.5 1 January 1957 onwards 67.0
Am I eligible for the Age Pension?
There are limitations around the amount of assets and income you have in order to receive the Age Pension. If your assets or income exceed the thresholds, your pension will reduce on a sliding scale.
The below tables show the key thresholds applicable to the Centrelink Age Pension at 20 March 2015:
Income test thresholds
Full pension (fortnightly) Full pension (annually) Part pension (fortnightly) Part pension (annually) Single $162
$4,212 $1,896 $49,296 Couple (combined) $288 $7,488 $2,902 $75,452
Asset test thresholds
Singles Couples Lower threshold Top threshold Lower threshold Top threshold Home owner $205,500
$783,500 $291,500 $1,163,000 Non-home owner $354,500 $932,500 $440,500 $1,312,000
Please note that the Government proposed to change these thresholds in January 2017.
For current information on the eligibility criteria for the Age Pension, visit the Centrelink website at humanservices.gov.au
The Age Pension – is it enough?
The Age Pension is a great starting point, but it probably won't be enough to support the lifestyle you want. The graph below shows the gap between the Age Pension (assuming maximum pension allowance) and the ASFA "modest" and "comfortable" retirement standards. Whilst this gap has been closing over the last 10 years, a modest lifestyle is exactly that – modest. It would cover your basic needs only - food, shelter, utilities and nothing more.
Most people have an expectation of a retirement that exceeds this, more like the comfortable" lifestyle that allows for the occasional holiday and meal out at a restaurant.
There are a number of ways to top-up the Age Pension, depending on your financial position and your priorities. If you haven't already retired, there are some tax effective ways to boost your super as you transition into retirement. Once you have retired there are different options for managing your income.
As at March 2015. ASFA Retirement Standards and Age Pension rates shown here are for couples.
Super annuation savings - Accessing your super
Most Australians approaching retirement today have some super savings. There are however some restrictions on how and when your super can be withdrawn.
Most people will only be able to access their super after you reach:
- their preservation age and permanently retire, or
- age 60 and leave their employer, or
- age 65.
Your preservation age is generally the minimum age you can get your super. It is set by the Government and ranges from 55 to 60 depending on when you were born.
Date of birth Preservation age (years) Before 1 July 1960 55 1 July 1960 - 30 June 1961 56 1 July 1961 - 30 June 1962 57 1 July 1962 - 30 June 1963 58 1 July 1963 - 30 June 1964 59 After 30 June 1964 60
If you have reached your preservation age but have not yet retired, you could consider a transition to retirement strategy which allows you to start using some of your super as income while you're still working.
Some other exceptional circumstances may allow you to gain access to your super, which you can find www.ato.gov.au. As the government encourages the use of super as ongoing income support in retirement, withdrawing your super prior to meeting one of the conditions of release may attract higher tax rates.
There are also tax advantages to investing in certain types of income products that accept super savings. So it's important to understand all the options available to you, and how best to combine any options you're eligible for.
Many people have investments or savings held outside of your super, or some form of paid work (if they're transitioning into retirement. These things can be factored into your retirement income strategy.
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