Retirement income can come from a range of different sources. Some forms of retirement income can be received tax-free and others are assessable income for tax purposes.
Ideally, you want your retirement income to outlast you, otherwise you might find yourself selling your dentures on Gumtree.
So, what’s the average retirement income in Australia and how much do you need for a comfortable retirement?
Let’s find out.
Once employment ends, retirement income is essential to cover lifestyle expenses. Retirement income can come in the form of investment income, superannuation pension income or social security payments. In fact, you will usually rely upon a combination of two or more of these types of retirement incomes during retirement.
Related article: Maximum Income After Retirement
Types of Retirement Income Streams
The types of retirement income streams available to you may depend on the type of employment you had and your preferences in retirement. For example, if you worked for a government or semi-government organisation, you may receive a lifetime defined benefit; whereas, if you worked in the private sector, you would likely be reliant on an account based income stream. However, you may choose an annuity style income stream instead.
Here is a list of the main types of retirement income streams that may be available to you:
|Account Based Pension||This is the most popular type of income stream available once you meet the definition of retirement, or attain age 65. Allows flexibility of income, subject to a minimum amount each year, as well as lump sum withdrawals. Not guaranteed to provide income for life.|
|Transition to Retirement Pension||Can be started once you reach your superannuation preservation age, even if you are still working. Provides income between minimum and maximum thresholds each year, which can supplement work-related earnings.|
|Defined Benefit Pension||A guaranteed lifetime income stream under an employment arrangement, based on your years of service and salary. Lump sum withdrawals are unavailable. Only available to certain employees.|
|Lifetime Annuity||A guaranteed lifetime income stream based on the purchase price amount, age of owner, interest rate and indexation rate. Lump sum withdrawals are generally unavailable.|
|Term Annuity||A guaranteed income stream for a pre-agreed timeframe (usually 0-50 years) based on the purchase price and interest rate offered. Lump sum withdrawals are generally unavailable.|
|Age Pension||Means tested social security payments made by the Australian Government to its citizens. Intended on covering very basic needs throughout retirement.|
|Overseas Pension||If you have previously lived or worked in another country, you may be eligible to receive a retirement pension from that country, despite retiring in Australia.|
What is a Comfortable Retirement Income in Australia?
The retirement income needed for a comfortable retirement in Australia is based on whether you are single or a member of a couple and the stage of retirement you are in.
The living expenses of retirees at or around age 67 is as follows:
|Modest Lifestyle||Comfortable Lifestyle|
|Expenses per year||$31,867||$45,947||$50,207||$70,806|
The living expenses of retirees at or around age 85 is as follows:
|Modest Lifestyle||Comfortable Lifestyle|
|Expenses per year||$29,378||$42,127||$46,618||$64,536|
Average Retirement Income in Australia
The average retirement income in Australia from age 65 is $39,000 per year for singles and $60,500 for couples. This is based on ASFA Retirement Standard data. While there are no specific statistics on average retirement incomes in Australia, one might assume the average retirement income is somewhere between the modest and comfortable retirement expenses of around $32,000 and $46,000 per year for singles and $50,000 and $71,000 for couples.
The main source of retirement income for Australians is the Government Age Pension, followed by superannuation income streams.
Related article: How Much Superannuation Do I Need?
Retirement Income Calculator
Using a retirement income calculator is the best way to determine the retirement income you need to cover your retirement expenses.
You can use the calculator to see when a good time to retire would be for you, as well as how much super you need to retire.
For Australians, it is best to use a retirement income calculator with the Age Pension built in (such as this one), so that you can get a more accurate picture of your retirement outcome.
When calculating your retirement income needs, you should always consider factors such as taxation, expected investment returns or interest rates, fees, inflation and life expectancy. Re-calculating your retirement projections each year or two is also a good idea to keep you on track.
Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.