With the pension age soon rising to 70, how much will a comfortable retirement cost you?
Australians born after 1965 will now be expected to work longer to receive the aged pension, but for those who can afford it, an early retirement is still possible.
In the recent Abbott Government’s federal budget, the Government announced the retirement age will rise to 70-years-old from 2035. Mr Hockey says the pension currently costs “was significantly more than the entire Defence budget” and is rising to $72 billion. The decision means that lower income earners, manual workers and indigenous Australians are likely to bear the brunt of the changes.
But with a healthy superannuation fund and appropriate forward planning, you do not need to rely on the aged pension and work until aged 70 to retire. So how much is needed to retire and still live comfortably?
To qualify for the full aged pension under the current legislation, Australians must have an income less than $156 per week for a single and up to $276 per week for a couple. If you are a single person earning more than $1841.60 per fortnight, or a couple earning more than $2817.20, you will not qualify.
The pension is also asset tested, with the government considering the value of financial investments, superannuation, business assets, cars, personal effects and more. Part-pensions cut out when assets are worth more than $672,750 for home-owning singles and $815,250 for singles without a house. For couples, this amount is $758,750 if you are a home owner, or $901,250 for non-home owners.
We believe a “rudimentary lifestyle” funded by the current Australian aged pension pays only $21,913 a year for a single person or $33,036 for a couple. It covers just a quarter of the average male weekly income. While the aged pension includes discounts on health services and amenities costs, the minimum fortnightly pension rate is just $383 per week.
The pension rate is less than what we consider enough to live on and effectively this income alone means living below the poverty line.
A reasonable retirement lifestyle comes in just above the aged pension, providing an income of $25,000 per year for singles, and $35,000 for couples. This retirement option only allows for low-cost activities and does not allow any overseas travel.
According to our research, singles retiring with this amount must budget $71 per week for food and $14 per other non food essentials.
A secure retirement provides an annual income of $45,000 for singles and $60,000 for couples. Living on this income means that retirees can afford things like private health insurance, good quality household goods and overseas travel.
On a secure lifestyle retirement, singles are allowed $115 a week for food and $40 for non food essentials.
We see a secure lifestyle allows a retiree to have a good standard of living with the ability to replace household goods when they fail, top private health insurance, a reasonable car and costs of up keep, good quality clothes, a range of electronic equipment, and domestic and the occasional international holiday.
This retirement option requires singles to save superannuation of $785,000 and couples $1.1 million.
Want even more?
Retirees who want to maintain the lifestyle that they enjoyed while they are working obviously need to save a whole lot more. A couple who would like a 25-year retirement with an income of $80,000 per year will need to retire with $1.8 million in superannuation.
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