Realities of living on the age pension in Australia

Retirement is often depicted as a time of relaxation and fulfilment, a well-deserved period of life to enjoy the fruits of one’s labour. However, the reality for many retirees in Australia, especially those relying solely on the age pension, can be quite different.

Here, we explore what life on the age pension is really like, the financial challenges it presents, and the questions it raises about retirement planning.

The age pension: A modest income

As at April 2024, for individuals aged 67 and over who qualify for the full government age pension in Australia, the fortnightly payment (including supplements) is just a little over, totalling approximately $29,023 annually for a single retiree. Couples receive combined age pension of $1682 per fortnight, equivalent to $43,752 annually. It’s essential to note that these figures include the maximum pension supplement and energy supplement, meant to provide additional support.

A challenging reality

Experts and retirees acknowledge that relying solely on the age pension can be tough. The modest income can make it challenging to cover everyday expenses, let alone unexpected or significant costs like appliance repairs or replacements. Many retirees find themselves living on a tight budget, with little room for leisure or extras.

ASFA’s perspective

The Association of Superannuation Funds of Australia (ASFA) offers insights into the income required for different retirement lifestyles. According to ASFA’s estimates for the December Quarter 2023 it sets the following for a modest lifestyle and comfortable lifestyle.

• What does ASFA consider a ‘modest’ lifestyle[1]? The modest retirement standard budgets for a retirement lifestyle that is slightly above the Age Pension and allows retirees to afford basic health insurance and infrequent exercise, leisure and social activities with family and friends. ASFA suggest that a modest single person (aged 65-84) needs $32,666 a year and for a couple this figure is $46,994 combined. While this budget ensures basic necessities are covered, it leaves little room for discretionary spending or unexpected financial demands.
• What does ASFA consider a ‘comfortable’ lifestyle[2]? In contrast, ASFA suggests that for a ‘comfortable’ retirement lifestyle, a single retiree (aged 65-84) needs an annual income of $51,278, while a couple combined requires $72,148. ASFA suggest that the comfortable retirement standard allows retirees to maintain a good standard of living in their post work years. It accounts for daily essentials, such as groceries, transport and home repairs, as well as private health insurance, a range of exercise and leisure activities and the occasional restaurant meal. Importantly it enables retirees to remain connected to family and friends virtually – through technology and in person, with an annual domestic trip and an international trip once every seven years. This substantial difference underscores the limitations of the age pension, as these figures are significantly higher than the maximum pension payment. However, even with this higher income, a ‘comfortable’ retirement may not include extravagant overseas travel or lavish entertainment. Neither does this definition take into account additional costs which may be incurred as retirees may need to move into Aged Care.

The importance of planning

Considering the financial challenges associated with the age pension, it’s evident that careful retirement planning is crucial. Whether retirement is on the horizon or further down the road, individuals should explore avenues for enhancing their retirement savings. This might involve strategic investments, superannuation contributions, or other financial strategies to ensure a more financially secure and enjoyable retirement.

Conclusion

Life on the age pension in Australia, while providing a safety net, often falls short of the retirement dreams many envision.

With modest income levels, retirees may find themselves on a tight budget with limited room for financial flexibility. The stark contrast between ‘modest’ and ‘comfortable’ retirement lifestyles emphasizes the importance of proactive retirement planning to achieve the latter and enjoy a worry-free retirement, free from financial constraints.

[1] https://www.superannuation.asn.au/resources/retirement-standard/

[2] https://www.superannuation.asn.au/resources/retirement-standard/