A Tale of Two Retirements

Older couple, laughing, benefits of budgeting

A tale of two retirements – which would you choose?

Sam and Sally Smith have worked hard all their lives, paid their taxes and, now they have retired, they feel they are entitled to a full age pension.

Jan and Jim Jones have also worked hard and paid their taxes. However, concerned that they want to live a similar quality lifestyle once retired, they have sought to be as financially independent in retirement as possible. With diligent savings and smart use of superannuation they have built a significant nest egg.

While both couples have equally valid views, it comes down to flexibility and choice!

What matters most?

This leaves would-be pensioners asking themselves: what matters most? Clawing back the tax paid over their working lives, or living the most comfortable lifestyle they can?

Several strategies can help boost the level of age pension, but these usually involve reducing the level of financial assets assessed by Centrelink which can deny pensioners both the income those assets could otherwise generate and the flexibility to draw down on your own investments when your pension payments fall short to cover larger bill months or additional expenses that can arise.

The Smiths might, for example spend up big on fixing up their home, give money away to their family within allowable limits, and taking one last big expensive overseas holiday. Once back home they might then qualify for a full age pension of $41,704 per annum[1]. That’s close to the amount ($45,106pa[2]) that the Association of Superannuation Funds of Australia (ASFA) calculates is sufficient for a “modest retirement” for a 65-year-old couple. That is, “only able to afford fairly basic costs.”

Things aren’t quite as bleak as that. The income test allows Sam and Sally to earn a combined $8,736 per year[3] and still receive a full pension, but that total of $50,440 pa leaves them quite a way short of being able to afford a “comfortable” lifestyle. ASFA defines this as one that “enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.” For a 65-year-old couple, this is estimated to cost $69,691 pa.

The self-funded alternative

That’s more the kind of lifestyle the Joneses have in mind, even if it means not qualifying for any age pension amounts, but may qualify them for Commonwealth Seniors Health card. They are freed from the need to watch every dollar and to report any changes in their circumstances to Centrelink, an inheritance, for example, they are also insulated from the impacts of any future changes to the age pension.

Start early and plan well

Unfortunately, many people retiring today don’t have a choice and, are dependent on the age pension, they will be denied that comfortable retirement. The key is to start retirement planning as early as possible. Pensions and superannuation are complex areas, so it is essential to obtain detailed and personalised advice from a qualified financial adviser. Take control of your future now.

Christine Swanson is an accredited financial Adviser who specialises in Retirement advice.

[1] As at March 2023.

[2] As at December 2022.

[3] As calculated under deeming rules. The actual cash amount may differ.

Christine Swanson is qualified professional adviser who can help guide you in making smarter financial decisionsBook an appointment today!

This information is of general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is correct and appropriate in light of your particular objectives, financial situation and needs.

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