Real value of your Age Pension

What is the real value of Age Pension in Australia?

Age Pension in Australia is different than in most other countries. Our system is means tested unlike in other countries, where it works more like a defined benefit, and your eligibility is based on length of your employment and income earned during your working years.

There is no point arguing which system is better, as one can prove either way, all I can say is that in Australia, unlike other countries, you can pre-plan and optimise money to maximise safety of government benefits as well as enjoying having a choice of how your personal assets are to be invested and what income you wish to derive from your own money.

So why do I concentrate on Age Pension so much? Why do I keep talking about it? Why do I, as a financial planner, keep trying to explain to everyone that if there is a way to restructure your savings and your financial assets for you to have access to part Age Pension, you should at least inquire and explore this avenue? Why?

I might surprise you.

My answer is based on simple mathematical formula and my goal for each of my client: to create income security for the rest of my clients’ lives.

Before we start answering those questions, you need to remember the following:
every $10,000 of your assets above the allowable limit of Asset Test threshold, reduces your Age Pension by $780pa.

So, if we reverse this, we could say that every $10,000 spent on your lifestyle, or one of the tips I provided in post: “9 ways to legally hide money from Centrelink Age Pension”, will improve your Age Pension by $780pa.

So logically you might say that every $100,000 of assets equals to $7,800 of annual income.

Can you please tell me, where can you find an investment that will provide you with a guaranteed, secure, and payable for life income at the rate of return of 7.8% that also increases with CPI (Consumer Price Index) annually?

After working for over 20 years in financial planning, I have not come across such an investment yet.

So to put this bluntly,  

• If you are a single pensioner eligible for the full Age Pension at today’s rate of $987.60, therefore annual income of $25,677 – In order for you to derive this income from your own sources you would need to have $329,200 of your own funds, and that’s providing that you can find an investment with a guaranteed rate of return of 7.8% for life and subject to annual income increase based on the level of inflation .  

Because this is a pretty unrealistic expectation, let’s look at rates that might be available on the market of say 4%. You would need to have approx. $640,000. 

• For a couple, your combined annual Age Pension amounts today to $38,708.80. If you were able to derive a guaranteed income of 7.8% (which we cannot), you would still need a lump sum of $496,266. If we get more realistic and calculate it based on 4% income return, you would need a lumpsum of $967,000.  

For a single pensioner your full Age Pension is equal to you having a lump sum of $640,000 invested to pay you your annual income of $25,677 for life.

For a couple, your full Age Pension equals to you having a lump sum of $967,000 to pay you your full Age Pension payment of $38,708 for life.

Can you see now the value of your Age Pension? Can you understand now, why I am trying to maximise it for every single retiree or pensioner I work with?

And I haven’t even mentioned any additional benefits such as a Pensioner HealthCare Card. If you don’t know what those benefits are, read this post: “Pensioner Concession Card – the best“

I really want you to fully understand and appreciate Age Pension in Australia. This is an incredible benefit for you if you can get even a small part of it.

So organise your money wisely, research every possible scenario, speak to professionals that work in this environment on daily basis, to take advantage of every single benefit that could be available to you.

Retirement is a Journey, not a Destination, so please be well prepared for the Ride

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement