Page 22 - Advice Matters - Byfields Wealth May 24

Life in retirement keeps

getting more expensive

The latest rise in the Age Pension rate still falls short of Under the Age Pension income test, singles can also earn up
what many people may need to have a modest lifestyle to $204 per fortnight ($5,304 per year) and couples $360 per
in retirement. fortnight ($9,360 per year) before their fortnightly full Age
Around 2.58 million Australians received a 1.78% government Pension payments are reduced based on every dollar earned
Age Pension payment boost on March 20 as part of Centrelink’s above these amounts.
twice-yearly indexation review. But to have a comfortable retirement, which ASFA defines as
They included the 1.76 million people who receive a full Age being able to maintain a good standard of living without major
Pension, according to Department of Social Services December spending restrictions, the association has calculated that single
2023 quarterly data, and a further 806,670 who qualify for retirees will need an annual income of $51,278.30 and couples
part pension payments based on them having passed either $72,148.19.
Centrelink’s “income” or “assets” pension means tests, or both. These levels are significantly above the full Age Pension rates and
are much more likely to be achieved by individuals and couples
The raise means the full Age Pension rate for singles has risen by
$19.60 to $1,116.30 per fortnight, and for couples by $14.70 to who are able to generate higher account-based pension income
from their accumulated retirement savings balances and other
$841.40 per fortnight each. These amounts equate to $29,023.80
and $43,752.80 per year, respectively. income-producing assets.
In doing so, they are more likely to fall outside of both the income
Yet, with cost-of-living pressures continuing to mount, receiving test and assets test boundaries to actually qualify for the Age
only the full Age Pension without the benefit of other sources Pension (at least during the early phase of their retirement
of regular income means that even having a modest lifestyle in until their pension drawdowns over time bring them within
retirement may be out of reach for many Australians. Centrelink’s limits for receiving a full or part Age Pension).
Retirement costs have spiked The benefits of good retirement planning
December 2023 quarterly data released by the Association of The 2023 thematic review of the retirement income covenant
Superannuation Funds of Australia (ASFA) shows that rises in by the Australian Prudential Regulation Authority (APRA) and
everyday living expenses had pushed up the amounts needed the Australian Securities & Investments Commission (ASIC) into
to fund a good standard of living in retirement to record levels. how super trustees are helping members enhance retirement
Falling inflation levels should help to reduce some of these living outcomes concluded that more needs to be done to improve
costs, but certainly not all of them. superannuation member outcomes in retirement.
Weekly budgets for various households and living Longevity risk – the risk of outliving savings – is a key concern
standards for those aged around 65 (December quarter for retirees in deciding how to draw down their superannuation
2023, national) during retirement.
“Most people rely on the Government for protection against
Single Couple Single Couple
Household longevity risk through the Age Pension, which provides a
Modest Modest Comfortable Comfortable
Housing - ongoing only $118.48 $133.61 $139.37 $145.49 safety net for retirees who outlive their savings,” according to
the Intergenerational Report 2023.
Energy $40.68 $54.64 $51.54 $63.92
Food $109.64 $203.27 $141.76 $246.38 “Well-designed superannuation retirement products can assist
Clothing $21.16 $40.21 $28.26 $52.63 retirees to make decisions to help smooth consumption over
Household goods & services $39.40 $46.25 $85.24 $105.69 retirement – aligning income needs with expenditure needs –
Health $55.53 $107.50 $112.94 $211.63 and draw down on their balances efficiently. This would also
Transport $109.57 $116.71 $179.02 $193.91 enable decision making early in retirement.”
Leisure $113.03 $117.47 $221.33 $332.71 Preparing well ahead for life in retirement is key. A good starting
Communications $18.29 $20.61 $22.88 $29.78 point for many Australians should be to seek out professional
Total per week $625.78 $900.27 $982.34 $1,382.15 financial advice, especially in the context of retirement spending and
Total per year $32,666 $46,994 $51,278 $72,148 understanding how the Age Pension may play an important role.
Source: ASFA Source: https://www.vanguard.com.au/personal/learn/smart-investing/
The annual cost for a single person aged between 65 and 84 retirement/expensive-life-in-retirement
to have a modest lifestyle in retirement was $32,665.66. This is https://data.gov.au/dataset/ds-dga-cff2ae8a-55e4-47db-a66d-
about 12.5% above the new full Age Pension rate. e177fe0ac6a0/distribution/dist-dga-d3fc019c-0b4d-401a-937a-
fde9591ad46a/details?q=
ASFA defines a modest retirement lifestyle income as one that https://www.servicesaustralia.gov.au/income-test-for-age-
enables retirees to afford basic health insurance and infrequent pension?context=22526
exercise, leisure and social activities with family and friends. https://www.servicesaustralia.gov.au/assets-test-for-age-
For couples, ASFA found that $46,994.28 per year was needed to pension?context=22526#a1
have a modest retirement. This level is only about 7.4% above https://download.asic.gov.au/media/z3shktv1/rep766_published-18-
the new full Age Pension rate for couples. july-2023.pdf

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MAY 2024