Can retirees rely on the Age Pension?

If you are looking forward to retirement and you are ready to start planning for what that may look like, you might be wondering how you will afford things once you retire.

Key points:

• The Age Pension is a safeguard for older Australians who run out of money or don’t have enough savings, super or investments to fund their retirement
• Retiring early can impact your savings and super, and may result in you receiving the Age Pension sooner
• Living on the Age Pension can change your whole lifestyle in retirement

Not having a regular income stream can be scary and stressful. However, you can always be assured that if you run out of money during retirement, the Age Pension is there as a fallback.

The Age Pension is a form of Government income support, which will only provide a modest lifestyle — if that — and is not a golden ticket to comfort or extravagance. You may have savings and superannuation saved up to cover your expenses during some of your retirement, but you may run out of your retirement funding and need to start transitioning to a part-Pension or full Age Pension.

So how can you plan your retirement with the Age Pension in mind?

Living on the Age Pension

While you can always consider the Age Pension as a safeguard from poverty when you are older, you should try to live on your own super and savings for as long as possible.

What does life look like on the Age Pension?

Data from Anglicare Australia’s Rental Affordability Snapshot of over 45,895 residences in 2023 shows:

• 162 rentals (0.4 percent) were affordable for a person on the Age Pension
• 508 rentals (1.1 percent) were affordable for a couple on the Age Pension

You will likely need to budget for day-to-day expenses and won’t be able to afford large impulse purchases. You might participate in free or inexpensive activities, hobbies, and leisure options; you will make use of ‘seniors’ meals’ at pubs and can get cheap takeaway every now and then; you will not have a budget to make urgent repairs on a car or broken things at home will be too expensive to repair; and you cannot afford private health insurance.

Having a loose budget plan can help you figure out what your necessary costs are in retirement. Potential costs that a person thinking about retirement should consider include:

• Accommodation [mortgage, council taxes, etc]
• Electricity and gas
• Clothing and shoes
• Food [including takeaway or special occasions]
• Phone and internet
• Transportation (petrol, car repairs, public transport, etc)
• Health (medication insuurance,, medical appointments, ongoing fitness, etc)
• Household products (cleaning products or services)
• Habits, holidays and hobbies [smoking, drinking, travel, et cetera]

Although, in recent years, the Age Pension hasn’t been enough for many older Australians, with inflation, the rental and housing crisis all pricing many people out of even living modestly.

Impacts on the Age Pension

There are a number of different things that can impact how much you receive through the Age Pension. You can receive the Age Pension if you are still receiving income through your super or through investments. However, that depends on how you access your super.

If you take out your super as a lump sum, then you will likely not be able to receive the Age Pension, as Centrelink/Services Australia checks your super balance when calculating how much of the Pension you will receive.

However, if you were to organise your super into ongoing incoming streams, you may be able to have Age Pension payments coming in to top up the money you are receiving from your super. This can not only help your super last longer into retirement, but can also ease you into life on the Age Pension.

Another consideration to make when planning for the Age Pension is whether you intend to continue working part-time in retirement. Generally, you can work a full day of work at minimum wage before that income begins to impact the Pension.

The best person to talk to about what can impact your Age Pension, to receive information on transitioning to retirement, or organising your retirement plan, is a financial advisor. Although, Government website MoneySmart’s retirement planner may be up your alley if you’re looking to get a rough idea of what you need in about 5 minutes.