How much income will you receive in retirement?

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By Suzie Barnaby
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23 September 2019, 7:00 AM

So you are finally about to make the transition from work to play. There are now really exciting decisions to be made about where you want to travel to, how often you want to visit family and what hobbies you want to spend your time doing.

However, before you start planning how you will spend your money in retirement, it’s important to understand just how much money you will need to do all of the fabulous things that you have planned.

Retiree about to enter the ocean for a surf

Potential income sources in retirement are likely to come from a combination of sources including superannuation, other investments and the Age Pension if you are eligible. You may even like to continue working on a casual basis if the opportunity arises.

To qualify for the Age Pension, you need to satisfy age and residency requirements. If you are eligible, the level of Age Pension received is means tested. To do this, Centrelink look at two tests – an Assets Test and an Income Test. The test that produces the lowest level of income is the one that is used. Of the 946,000 Australians who receive a part-rate Age Pension, approximately two thirds are assessed under the Income Test and one third are assessed under the Assets Test.1

There have recently been some changes announced to the deeming rate, which affects those assessed under the income test. The deeming rate is the rate the government assumes, or ‘deems’ that you have made on investments. Deeming assumes that financial investments are earning a set rate of income, regardless of the amount they are actually earning. It has been announced that the deeming rate will be reduced to 1% and 3%, depending on your level of assets.

If you want to minimise the tax you pay and maximise the Age Pension you receive then the way you structure your income from superannuation, other investments and any other earnt income is paramount. When structuring and planning your income for retirement, other considerations that will come into play are your estate plans, your tolerance for risk, your health situation, any capital expenditure required such as repairs or renovations on your home and more.

The above can be complex and overwhelming when trying to navigate it yourself and ascertain just how much you will actually have to live on in retirement. A financial adviser can work with you to establish what is most important to you and what type of income you’ll need in retirement. They can then help you to plan how to achieve that income in retirement.

1Source: DSS Payment Demographic Data, December 2018.

Find out more

Suzie is a Senior Financial Planner at Morgans Port Macquarie. Suzie’s passion is supporting and educating clients so they can make well-informed decisions in relation to their own financial situation.

If you would like to learn more about assessing your finances, you can contact the Morgans Port Macquarie office on [email protected] or via (02) 6583 1735.

General Advice warning: This article is made without consideration of any specific client’s investment objectives, financial situation or needs. It is recommended that any persons who wish to act upon this report consult with their investment adviser before doing so. Morgans does not accept any liability for the results of any actions taken or not taken on the basis of information in this report, or for any negligent misstatements, errors or omissions.

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