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What’s life really like on the age pension?

Life on the aged pension can be a daily struggle with little buffer to keep the wolf from the door, writes Sally Patten.

Life on the aged pension? “It’s tough.” And “it sucks”. That is how Mima Rahaman, a senior financial adviser with ThinkWealth Management, and Patrick Canion, chief executive officer of ipac Western Australia, respectively describe life on the age pension.

“You can make do from week-to-week, but when big items come along, you can really struggle,” says Canion. “For example, if the fridge packs it in, or your shoes need repairing, often you’ve got nothing to fall back on.”

“I advise all my clients to maximise the amount of money they save for retirement so they don’t need to rely on the age pension,” Rahman adds.

It’s sage advice when you consider the size of the age pension – which is what the government will provide for retirees who leave the workforce with little in the way of assets (in 2017 this will be less than $250,000 in total assets for a single homeowner or $375,000 for a couple who own their own home).

A single retiree who qualifies for the full government age pension can expect to receive $877.10 a fortnight, which adds up to $22,804 a year, including a so-called pension supplement and an energy supplement. A couple can expect to receive $1322 a fortnight, which is $34,372 a year.

The income levels are not a long way off the amount that is considered necessary to lead a “modest” lifestyle according to analysis by The Association of Superannuation Funds of Australia.

But rather than “modest”, “frugal” might be a better descriptor.

ASFA’s latest estimates for the September quarter 2016, suggests a single person between the age of 65 and 85 would need an income of $23,996 to achieve a modest lifestyle. The catch is that this requires spending nothing on items such as gifts, music, home improvements or overseas holidays.

  

The income level allows for an individual to spend:

  •  just over $962 a year on domestic holidays
  • $25 a month on entertainment such as cinema, plays and sport
  • $8.40 a month at the chemist
  • $77 a week on food – groceries and other fresh food
  • $36.75 a month on telecommunications (home phone, broadband and mobile)
  • just $10.17 on the weekly alcohol bill.

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

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In the case of a couple, according to the ASFA, they would need to generate $34,216 a year to achieve a modest lifestyle. This limits combined spending to things such as:

  • $39 a month at the hairdresser or barber
  • $124.15 a month on clothing and footwear purchases
  • $159.60 a week on food – groceries and other fresh food.

Again there is no provision for gifts or offshore holidays.

If this paints a depressing future, advisers say the answer is to get saving. In order to lead a “comfortable” lifestyle in retirement, an individual would need to be able to generate an income of $43,062 a year and a couple $59,160 a year, argues the ASFA.

That might be a tall order, but the reward for being able to save this much will be more money available for meals out, vacations, wine and treats for the grandkids.
 

Budgets for households and living standards for those aged around 65
(September quarter 2016, national)

  Modest lifestyle Comfortable lifestyle
  Single Couple Single Couple
Total per year $23,996 $34,560 $43,372 $59,619


Budgets for households and living standards for those aged around 85
(September quarter 2016, national)

  Modest lifestyle Comfortable lifestyle
  Single* Couple Single* Couple
Total per year $23,572 $34,952 $39,816 $54,942

The figures in each case assume that the retiree(s) own their own home and relate to the expenditure of the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. *Single calculations are based on female spending habits.
Source: ASFA

How Sally makes ends meet on the pension

Paying just $85 rent a week for a one-bedroom unit, retired nurse Sally Stabback considers herself one of the fortunate ones.

“I'm very lucky – very, very lucky,” says the 73-year-old, who lives in a cluster of units run by a non-profit organisation in Kyneton, about an hour north of Melbourne in the Macedon Ranges.

“Before I got here, I had to rent in town. I was paying $270 a week,” says the single pensioner.

Stabback worked in public hospitals for much of her life, before being made redundant. She later ran a cleaning business before retiring early because of arthritis about 10 years ago.

“I had a little bit of super, and it was a very little bit,” she says. “Our wages weren’t very big, so even if I had put super away it would have been a piddly amount.”

These days she relies solely on the age pension – about $920 a fortnight, including rent assistance and other allowances.

On “payday” she puts aside her rent money, and another $100 for utilities. Of that, she pays $40 to her electricity provider, which puts her into credit ahead of winter.

She has a doctor who bulk bills, but thinks hard before seeing specialists.

As for fun, Stabback says: “If I didn’t have a lovely, kind sister I probably wouldn’t go much anywhere.”

However, she does enjoy holding her own “Saturday matinee” at home with old opera videos, catching up with friends for a cuppa or reading murder novels. She also volunteers.

Generally, Stabback says living on the age pension “doesn’t feel comfortable because you never feel as though you’ve got much there to fall back on”.

“I consider myself very lucky and I’m very grateful to be able to get the pension – but it’s not enough, it needs to go up.”

Case study by Larissa Ham

  

December 2016