Being a Self-Funded Retiree In Australia: Your Complete Guide

Self Funded Retiree Australia

You’ve built up super, maybe got an investment property or two, and possibly even a share portfolio. Now, you’re ready to retire and want to know how self-funded retirement works.

This article explores what a self-funded retiree in Australia is, self-funded retiree entitlements, how much a self-funded can earn, plus more.

What Is a Self-Funded Retiree?

A self-funded retiree is a person who is able to generate an income from their investments or superannuation sufficient to cover retirement income needs, without needing it to be supplemented by social security benefits.

In Australia, you are generally considered a self-funded retiree if you are able to meet your income needs without receiving any Centrelink Age Pension payments. You would still be classified as a self-funded retiree if you were entitled to a seniors health care card or other types of concessions; but if you are eligible for these types of concessions and take advantage of them, are you really still self-funded?

How Does Self-Funded Retirement Work?

Self-funded retirement works by relying solely on your personal investments and superannuation savings to provide you with an income that is adequate enough to cover your living expenses.

Your personal investments might provide income in the form of interest, dividends, rent or distributions, which assists in covering your costs. Additionally, your superannuation could be converted into an income stream, which is another source of self-funded income that contributes towards meeting your retirement income needs.

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The large majority of self-funded retirees will actually use a combination of income and a drawdown of capital to meet expenses. What I mean by this is that investments will probably need to be sold down gradually over time and added to the income that these investments generate, in order to satisfy income needs (i.e. the income alone, over time, will not be sufficient for most people).

Even if you own an investment property or two, there will probably be a point that one or both will need to be sold to meet your retirement needs.

What this also means is that, in 10 or 20 years, your investments may have been reduced to a point where you become eligible for part-Age Pension payments; consequently resulting in you no longer being self-funded, by definition.

Related Article: 5 Biggest Retirement Planning Mistakes

What Benefits Are Self-Funded Retirees Entitled To?

The benefits self-funded retirees are entitled to is generally limited to concession cards and the health care card. In saying that, wouldn’t the term self-funded retiree benefit entitlements be an oxymoron? But, let’s not get too technical.

What are these health care and concession cards I speak of? Well, here’s an overview:

The Commonwealth Seniors Health Care Card

The Commonwealth Seniors Health Care Card is a concession card that provides discounts to healthcare products and services. You are eligible for the Commonwealth Seniors Health Care Card if you have reached Age Pension age, but are not eligible for any income support payments from Centrelink or the Department of Veteran Affairs (DVA). You also need to meet the income test.

The income test is as follows:

  • Single People: $90,000 per year
  • Couples: $144,000 per year
  • Couples Separated by Illness, Respite or Prison: $180,000

Income, for the purposes of the Commonwealth Seniors Health Care Card, includes adjusted taxable income, plus deemed account-based pension income.

You can learn more about the Commonwealth Seniors Health Care Card and eligibility requirements here.

Seniors Card

A Seniors Card is a concession card offered by Australian states and territories that provides benefits and discounts to goods and services at participating outlets, cheaper public transport and other government concessions.

You can find more information to your Seniors Card here:

The eligibility for state and territory concession cards may vary.

Can Self Funded Retirees Get The Pension?

Self-funded retirees can get the Age Pension if they meet the general eligibility requirements and have assessable income and assets below the upper thresholds of both the Income Test and the Assets Test.

If you, as a self-funded retiree, found that you were eligible for Centrelink Age Pension payments, then you would no longer be considered a self-funded retiree, due to being at least partially reliant on social security payments.

Read more: Can Self Funded Retirees Get the Pension

Can Self-Funded Retirees Work?

Yes, a self-funded retiree can work. There is no restriction on the number of hours a self-funded retiree can work, nor the age that a self-funded retiree can work until.

If you do decide to continue working as a self-funded retiree, then you are likely to be a self-funded retiree for longer, because while you are working you will presumably be drawing down less on your superannuation and investments. Also, by preserving more of your wealth, you’ll have greater funds available to cover eventual aged care costs or providing a financial legacy to loved ones.

Do Self-Funded Retirees Pay Tax in Australia?

Self-funded retirees do pay tax in Australia and are required to lodge a tax return in certain instances. The main types of taxes a self-funded retiree may be required to pay includes personal income tax, capital gains tax or tax within superannuation. Let’s take a look at each of these individually.

Learn More: How Much Tax Do Self-Funded Retirees Pay in Australia?

1. Does a Self-Funded Retiree Pay Personal Income Tax?

A self-funded retiree pays tax in the same manner that any other person in Australia would pay tax, which is assessed at individual marginal tax rates, including the standard tax-free threshold However, a self-funded retiree may be eligible for the seniors and pensioners tax offset (SAPTO) to reduce their personal income tax payable.

You can use this tool to determine whether or not you need to lodge an individual tax return.

2. Does a Self-Funded Retiree Pay Capital Gains Tax?

A self-funded retiree pays capital gains tax (CGT) in the same way any other Australian would pay capital gains tax. That is, the capital gain (less any capital losses or CGT concessions) realised from the sale of an investment asset is taxed at your individual tax rate (together with all other forms of taxable income) in the year the investment is sold.

Due to a self-funded retiree presumably having little or no work-related income, capital gains tax (CGT) is likely to be lower than a non-retired Australian, because less assessable income is being taxed at their marginal tax rate.

3. Does a Self-Funded Retiree Pay Tax on Superannuation?

A self-funded retiree will generally not pay any tax on superannuation withdrawals from age 60, onwards. This includes both lump sum withdrawals and pension payments. Tax may be payable on super withdrawals while under age 60.

In relation to investment earnings derived from assets held within a superannuation account, there may be tax payable. Tax on super earnings within a super accumulation account are taxed at a flat rate of up to 15%. Whereas all earnings within a pension account are received tax free.

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Frequently Asked Questions

Listed below are some frequently asked questions from self-funded retirees in Australia.

How Much Can a Self-Funded Retiree Earn?

A self-funded retiree is able to earn as much as they like. Such earnings may come from investment earnings inside or outside of superannuation, such as rent, dividends, pension payments, bank interest or distributions. A self-funded retiree is also able to earn as much work-related income as they like. However, if a self-funded retiree earns any substantial work-related income, are they really a retiree?

Can Self-Funded Retirees Gift Money?

Yes, a self-funded retiree can gift money. There is nothing that can stop you from gifting money to children, family and loved ones. Any amount that you gift that exceeds the Centrelink gifting limits will continue to be counted for Centrelink Assets and Income Test purposes for a period of 5 years. That is, it will be assumed for Centrelink purposes that you still own those assets for a further 5 years. The Centrelink gifting rules allow you to gift up to $10,000 in any one financial year, with a total of up to $30,000 over 5 years, without these amounts continuing to be counted for Centrelink.

Do Self-Funded Retirees Pay Medicare Levy?

Yes, self-funded retirees pay the Medicare Levy in the same way that any other taxpayer would. In fact, the same individual marginal tax rates and Medicare levy apply to all Australians, regardless of employment status. The current Medicare Levy is 2%.

Do Self-Funded Retirees Get Any Government Assistance?

Self-funded retirees can get government assistance in the form of part-Age Pension as well as health care cards and seniors cards. Although, if a self-funded retiree receives government assistance then arguably they would not be self-funded.

How Many Self-Funded Retirees Are There in Australia?

There are approximately 2 million Australians aged 65 years and over who are partially or fully self-funded retirees. It is expected that 43% of Australians at retirement age will be fully self-funded from 2023, compared with 22% in 2000.

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Thanks for stopping by - Chris