The government’s 2020 Retirement Income Review made it clear owning your home mortgage free, instead of renting, is a significant factor in your ability to live a modest lifestyle, or better, in retirement. Not only is your home exempt from the pension assets test, it’s also a store of wealth that can be used to supplement your retirement income. It could also be argued that home ownership is the solid foundation supporting all three. We will assume you are in reasonable health and don’t need to provide funds for major surgeries or treatments caused by trauma or disease, although that can become an issue at any time, particularly for the very elderly.īelow we cover some major areas that could impact most on your spending.Īustralia’s retirement income system is based on three sources of income, or three pillars: a means-tested Age Pension, compulsory super, and voluntary savings both in and out of super. The big question then is: What type of retirement do you want and what might that cost? Should I track spending or just do a budget? What areas will most impact my cost of living in retirement? A common rule of thumb is that you will need 66–80% of your pre-retirement income to enjoy your current standard of living into retirement. Perhaps a more useful guide to retirement spending is your spending patterns and lifestyle preferences pre-retirement. Others may reach retirement after having spent years raising kids and working and want to tick off a lengthy bucket list of travel and other activities. Others may want to help their children or grandchildren with a home deposit or private school fees. Some are content to live a simple life and have no desire for luxuries or even regular social outings, such as restaurants or live entertainment. The issue with all categories is that we all have our own views on what would be a modest or comfortable retirement. Budget projections can be highly variable and dependent on individual preferences. While the ASFA and SCA budgets provide food for thought, it’s best not to take them as the final word. However, the Age Pension does come with supplements and rent assistance (if you are renting) for eligible retirees, albeit smallish amounts, which may further cloud any projections or assumptions. Even a few extra dollars a week from superannuation or a part-time job can make a big difference to the lifestyle of low-income earners. Age pensioners who rent privately will struggle financially. It’s worth noting that the ASFA and SCA budgets assume that retirees own their own home outright and are relatively healthy. On the face of it, the figures suggest there is not much difference between a modest/low-spending lifestyle and one based on the Age Pension. The budget estimates in the table above assume retirees own their home outright. As you can see, this is below even the modest retirement standard. An Age Pension will pay approximately $40,238 per year for couples combined, and $26,689 for singles. A retirement based on the Age Pension generally provides a frugal lifestyle on a tight budget, with most spending at a basic level limited to essential items only.Singles might expect to spend $30,582 per year. For couples aged 65 to 84, a modest lifestyle is estimated to cost around $44,034 per year. A modest retirement necessitates cutbacks in many of these areas, with less discretionary spending but still with the ability to afford a car and enjoy most leisure activities and some travel.Singles might expect to spend $48,266 per year. For couples aged 65 to 84, a comfortable lifestyle is estimated to cost around $68,014 per year.
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