Australians retiring into hardship and relative poverty.

Last night I was speaking with Jack [not his real name] and I asked him what his plans were for his future retirement needs. Jack said, “I’m pretty right actually”. But was he?

Let’s take a look.

Jack who is a 55year old single dad and has
$1.6 million in assets principally made up of his family home and an investment
property. These have a combined debt of $700,000 so his equity is $900,000
split between his home and the investment property 50/50 – so his equity in his
investment property is a net $450,000.

Like most self-employed people running their own business he doesn’t have much super – most of his profits have gone back into the company to fund growth over the years. So, he has just $80,000 in super, however, his business has a net worth of around $300,000 made up of saleable profits, stock and equipment.


He’s paying himself $90,000 per annum out of the business but has 3 children under 17 so his monthly expenses are still pretty high [the government estimates that each child costs an average of $406,000 from birth through to high school and higher education]. Nonetheless, Jack feels like he’s doing really well. He plans to retire in 10 years at age 65 and wants to budget through to age 95.

To check we loaded Jack’s data into the Retirement Calculator provided free by the government. This shows that the maximum retirement income Jack will be able to pay himself each year will be on $39,520 [in today’s dollars] including a part Age Pension which would kick in at age 78 and would continue for the rest of his life. This is below the government’s estimate of $43,600 required for a ‘comfortable’ retirement and well short of Jack’s hoped for $60,000 per annum.


But what if the Pension is not there or is significantly reduced. Well, if we delete the Pension Jack’s annual income drops to just $30,000 per annum and gives him an extremely constrained outlook – almost what he would call relative poverty and what some pensioners are referring to as living from “crisis to cat food” – see chart below.

And he still has to pay off his mortgages plus interest – estimate $900,000 and even then has not saved up a cash reserve to have behind him for emergencies and other demands on cash he’ll face in his lifetime [new car, home renovations, health issues, daughter’s wedding etc].

Having assessed more than 300 clients from all walks of life in the past 2 years we’ve seen only 3 or 4 who were truly on track to become financially independent. All the rest were going to be relying on the Age Pension to fund their lifestyle in retirement to acceptable levels.

But will the Age Pension always be available at today’s rates?

This is a critical question when you hear comments from experts such as ASFA chief executive, Martin Fahy, who recently implied the Age Pension could not possibly be maintained at today’s levels. 

When referencing a recent report by the Grattan Institute, Mr Fahy said, “Grattan continually made incorrect assumptions in a number of key areas including an …unrealistic view of the future level of the age pension”.

He went on to say, “Grattan assumes that when a person aged 30 now retires at age 67, the full age pension will be $38,000 a year in today’s dollars. That represents a 58 per cent increase in the age pension which is simply unaffordable today, let alone in the future when an ageing population places further pressure on fiscal budgets.” ref:

Reported comments by former Minister for Human Services in the Abbot Government, Marise Payne [now Minister for Women in the Morrison Government since 2018]:

“While the age pension has been quarantined from its cost-cutting review of the
welfare system, the government is looking at other ways to rein in the pension,
including upping the working life requirement from 25 to 35 years. This would
mean that pensioners who have lived in Australia for less than 35 years would
receive lower rates of payment.

According to the Minister for Human Services Marise Payne, the majority of overseas
welfare recipients are living in Italy (16,800), Greece (13,700) and New
Zealand (11,300), with the “vast majority” of these receiving the age pension.

“We pay just over $770 million to people who are receiving pensions who are living outside of Australia,” says the Minister, who explains the tightening of pension requirements as necessary to the “management of the budget”.


The ASFA ‘Modest’ lifestyle [Single $27,814pa – Couple $40,054pa]:

This income level allows for an individual to:

  • spend no more than $980 a year on domestic holidays,
  • $23.80 a month on entertainment such as cinema and musicals,
  • $7.40 a month at the chemist
  • $77.40 a week on food.
  • no more than $35 a month on a telecommunications package, such as a bundle of home phone, broadband and mobile,
  • no more than $10.30 per weekly on alcohol.

That doesn’t allow for much in the way of treats for the grandkids, more expensive cuts of meat or trips to the theatre.

In the case of a couple, according to ASFA, this limits combined spending to these kinds of levels:

  • hairdresser or barber no more than $36 a month,
  • clothing and footwear purchases to $115.40 a month and
  • spending on food to $160.40 a week.

Again, there is no provision for gifts or offshore

Useful Links:

Seems like Jack needs to wake up to the reality of his problem –
the sooner the better. Otherwise he could be in the ‘from crisis to cat food’
camp and living a life of quiet despair.

NOTE: Though our ultimate aim is to assist clients with creating a debt-free
way of generating passive income in retirement we are not financial advisers
and do not provide financial planning advice and do not deal with any
investments outside of property. All of the information provided herein is
either specific to property or of a general nature or not specific to your
situation or is based on calculators provided for general public use by the
Australian government

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