Newsletter Volume 1 Edition 8
Sent 30 October 2011
Could you live on $20,000 a year or $30,000 for a couple?
The Single rate of Age Pension was recently increased to provide a maximum total payment of $19,469 for a year for a homeowner living alone, that is, 26 fortnightly payments of $748.80.
The Age Pension without any other financial resources provides for a ‘frugal lifestyle’. Pensioners become adept at seeking out the Pensioner and Seniors discounts but still they must treat as ‘luxuries’ things that self funded retirees regard as essential non-discretionary items.
Real financial distress arises when any major expense becomes necessary. Without significant retained savings a leaking roof, an essential replacement of their only motor vehicle, or a quality hearing aid are out of reach.
The Association of Superannuation Funds of Australia (ASFA) Westpac Retirement Survey indicated that the cost of a ‘modest lifestyle’ is about $834 per fortnight for a Single homeowner. The ‘modest lifestyle’ allows for the ongoing costs of home ownership such as municipal rates and minor repairs but not for any major property expenses. The ‘modest lifestyle’ does not allow for any private health insurance, gifts or overseas travel.
Whilst the ‘modest lifestyle’ costs around 10% more than the Age Pension, it does not cover the costs of replacing cars, hips or major household items. A financial asset of $100,000 could provide the funds for major ‘replacement’ costs together with a little bank interest without reducing the Age Pension entitlement.
The ASFA Westpac Retirement Survey indicated that a ‘comfortable lifestyle’ could cost the single homeowner about $1,540 per fortnight, more than twice the Age Pension. Funding a comfortable lifestyle requires a significant level of financial resources.
But do not expect the Age Pension to be a significant part of funding your comfortable lifestyle as you would be ineligible for any Age Pension if your ‘fortnightly income’ for Centrelink purposes reaches $1,528.
To fund a ‘comfortable lifestyle’ would require a substantial allocated annuity, some non superannuation investments perhaps with a very small amount of Age Pension. Alternatively to financing a ‘comfortable lifestyle’ is to have substantial financial resources combined with a willingness to sell assets to cover your living expenses.
A single person who rents public housing could have only $576.55 per fortnight available for other expenses after paying rent. The ‘modest lifestyle’ costs about $720 per fortnight excluding the ongoing costs of home ownership. Thus the single person who was fortunate enough to secure public housing could have an ‘after rent’ income of only 80% of the cost of the ‘modest lifestyle’.
Private landlords could be charging much higher rents than ‘public housing’ tenants pay for similar properties. Any financial resources a private renter had on retirement could be dissipated on rent and essential expenses for just a ‘frugal lifestyle’.
In summary, the people who live in private rental accommodation are at significant risk of being really poor in retirement. Renters should give serious attention to their long term housing needs years before their planned retirement.
In contrast, a ‘modest lifestyle’ is achievable for a single Age Pensioner home owner with, say, $100,000 of financial resources.
Sharing domestic arrangements with another pensioner could spread some fixed costs. But remember the Centrelink definition of a couple. The maximum combined annual Age Pension a ‘couple living together’ could receive is $29,354 , that is, 26 payments of $1,129 per fortnight a income of. The current maximum Age Pension is $564.50 per person per fortnight including the Pension Supplement for a couple living together.
The ASFA Westpac Retirement Survey indicated that the cost of a ‘modest lifestyle’ is about $1,209 per fortnight for a home owner couple. The additional $80 per fortnight provides for a modest lifestyle rather than the minimal frugal lifestyle funded by the Age Pension.
A savings plan for the final years in the workforce could garner the funds to ease financial stress in retirement.
More information at
Clients of Financial Care Services receive impartial confidential financial advice from an actuary. Financial Care Services is an independent professional financial advisory service which holds Australian Financial Services Licence number 299570.
Clients are charged flat fees for advice and assistance; no upfront commissions are accepted in respect of clients’ investments. Home visits and out of hours appointments are available to assist client families.
For more information call Christine on 9808 0338 or visit www.financialcareservices.com.au
Financial Care Services specialises in advising seniors through life’s transitions.
Remember, referring your clients for impartial professional financial advice enhances your profile and reduces the potential for later complaints.
Fellow of Institute of Actuaries of Australia
Director and Authorised Representative
Financial Care Services
Telephone 03 9808 0338