How does the Australian Age Pension system work?
Saving for retirement is something not everyone starts doing in good time. And yet, around a third of all people have asked themselves "when should I start planning for retirement?" and have decided it is too far away to worry about, Roy Morgan recently found. Even 16-17 per cent of 45- to 54-year-olds have put off the important task of building a nest egg.
Fear, greed and love are the three main drivers to make people take their finances seriously, and if the latter two don't take effect first, it's usually fear that inspires people to start planning for retirement.
However, wait too long and people may find their superannuation savings are a little smaller than they anticipated. Matters get worse when Deloitte predicted that even $1 million might not be enough for some to retire on in a few decades time.
People may be underestimating how much they need to comfortably retire.
Is $1 million enough to retire on?
Deloitte believes we may not be saving enough for our golden years, prompting proposed changes to superannuation tax law.
"With total superannuation assets currently around $1.6 trillion, the pool is projected to grow to $4 trillion in the next 10 years and $7.6 trillion by 2033," Deloitte began explaining.
"This growth is founded on the Superannuation Guarantee of 9.25 per cent rising to 12 per cent, on gradual population growth, as well as investment returns – a significant contributor."
An Australian population that is living longer, is not completely secure in terms of the future economy and has been favouring lump-sum retirement payments is heading in an uncertain direction – and it might be a risky one. People may be underestimating how much they need to comfortably retire.
That means superannuation (whether it's a default, employer-sponsored one or a self-managed super fund) will require more thought. But let's not forget our pensions, too. By understanding both your pension entitlements and superannuation today, you are likely to thank yourself when it comes time to put your feet up and retire.
How does the pension system work?
Separate to your own super savings is your pension. Your super is only accessible after a certain age (55-65, depending on when you were born), and your pension works on a similar principal – 65 for men, with women's entitlement slowly being pushed up to that age, too.
The Australian Age Pension system operates by adding up the value of your assets and income (both direct, like wages, and passive, such as rent on a property you own). Depending on the final figure, you are entitled to either a full, part or no pension.
There's plenty to explain, including those age brackets and some upcoming rule changes, so we'll let Eclipse Managing Director Justin Butler explain further in the video below:
Living comfortably in retirement
A comfortable retirement includes things like home improvements and the odd international holiday, and came to $817.07 per week.
When it comes time to drawing your pension and your super savings, you'll ideally like to live out your golden years in comfort, rather than just "getting by". The Association of Superannuation Funds of Australia (ASFA) estimated the difference between an individual who lives comfortably and one that continues to live a modest lifestyle, and found quite the gap in expenditure.
As published in the Australian Financial Review, the ASFA says an average individual will spend $450.09 a week to live a modest lifestyle, taking in all expenses from haircuts to local vacations. A comfortable retirement includes things like home improvements and the odd international holiday, and came to $817.07 per week.
The difference could be useful for anyone that may not realise the true cost of retirement. With a life of comfort costing around 80 per cent more, it puts the emphasis on planning for retirement today, with both your pension and superannuation fund. After all, a little financial planning can go a long way.
To set yourself on a stronger financial footing, contact the team at Eclipse today. By being based locally in the Whitsunday Shire, we help individuals and families secure their futures. Give us a call on 07 4946 7359, or pop into our office for a chat.