Retirement planning is the process of determining a retirement goal and budget that aligns with your current savings plan, which comprises of money you’ve earned to use when you retire. Your retirement plan helps you figure out what income stream you’ll be dependent on, such as regular or irregular and align your ambitions with your financial circumstances.
Some of the most common income streams during retirement include a pension, an annuity, a Government pension loan scheme, and a reverse mortgage. Read on to learn more about creating a retirement plan and explore how they work.
A helpful checklist packed with information to help you understand and create a retirement plan.
Sign up below and we’ll send it to you when it is launched.
‘The Retirement Standard’ is a simple baseline retirement expenses budget that’s produced and monitored by the Association of Superannuation Funds of Australia (ASFA). It’s designed to help retirees understand and plan their basic expenses for either a comfortable or modest standard of living in their post-work years. This data is updated quarterly, to reflect changes to inflation, and is underpinned by a full-example budget that you can download for lifestyle.
The average cost-of-living budget required by those around 65 years of age who are planning to retire with a modest lifestyle is:
Single: $28,254 per year
Couple: $40,829 per year
The average cost-of-living budget required by those around 65 years of age who are planning to retire with a comfortable lifestyle is:
Single: $44,412 per year
Couple: $62,828 per year
Step 1. Write down all your goals and ambitions for your retirement. Be as specific as possible.
Step 2. Divide these goals up into essential, discretionary and one-off expenses and calculate how much you need to achieve those goals.
Step 3. Assess your assets and income, understanding how you plan to invest and what potential regular and irregular income is likely to be available to you (through the Age Pensione etc).
Step 4. Review this process and update your goals, plans, expenses budget, and income strategies regularly.
Once you retire, you can access your superannuation (or start a transition to retirement income stream) if you have reached your ‘preservation age’. Your preservation age has been set by the Australian Tax Office based on your birth date. (Please note: your preservation age is not the same as your pension age.)
|Your birth date||Your preservation age (when you can access your super)|
|Before 1 July 1960||55|
|1 July 1960 — 30 June 1961||56|
|1 July 1961 — 30 June 1962||57|
|1 July 1962 — 30 June 1963||58|
|1 July 1963 — 30 June 1964||59|
|After 1 July 1964||60|
As you plan for your retirement, it’s important to understand which government retirement benefits and entitlements you may be eligible for and what the rules and thresholds are for each of these. Common entitlements people seek out include:
The Age Pension is the core retirement benefit available to older Australians. To qualify for the Age Pension you need to be:
How much you receive from Services Australia as an Age Pension really depends on how you are affected by the income and assets tests. It also depends on whether you’re single or in a couple.
The maximum Age Pension for singles and couples are outlined below:
Singles: $868.30 a fortnight or $22,575 a year
Couples: $1,309 a fortnight or $34,034 a year
These amounts do not include any supplements or other benefits.
If you qualify for the Age Pension, you may also qualify for one or more of the following:
A Pensioner Concession Card can give you access to cheaper medicines, bulk-billed doctor visits, help with hearing services, and gives you discounts on public transport in some states too. It’s a benefit offered to people who:
Seniors Cards are run on a state-by-state basis, usually offering discounts on a range of goods and services and on public transport. In most states, the criteria to apply for a Seniors Card are:
Eligibility for a Seniors Card is different in different states and territories.
The Commonwealth Seniors Health Card is a benefit offered to those of pension age who meet an income test but are not eligible for the Pensioner Concession Card. It allows you to get cheaper prescriptions from the pharmacy and cheaper medical appointments.
To qualify you must:
Start by considering your annual cost of everyday essential items, bills and discretionary and one-off expenses that only come around once a year. You can check your bank statements over the past three months to get a sense of the totals, but don’t forget those big-ticket items.
Add your favourite activities and estimate their combined annual cost. Consider things like dining out, holidays, Christmas gifts and birthday presents. Combining these amounts will give you an idea of how much you’ll need per year to live your ideal retirement, but don’t forget to account for the rise in the cost of living that’ll occur over time. You’ll then need to decide if you can afford to keep living like that or need to scale expenses back for a more modest lifestyle.
Expenses increase in areas such as medical and travel when you’re retired, while your income stream decreases, so it’s important to understand how to achieve a balance between income and expenses as early as possible.
To plan with some level of accuracy, you need to consider the age you plan to retire and the age you expect to live until. This is commonly known as your longevity and it underpins all retirement budgets.
You then need to consider your expenses, which you should calculate in three parts:
Normally an Australian retiree’s budget for essential expenses falls into the following categories:
Each of these are necessary items that a person cannot live without.
Australian retirees commonly allocate a discretionary expense budget to items related to leisure, entertainment, dining out, hobbies, non-essential media, travel, gifts and club memberships. They are discretionary as they are usually considered non-essential and, if necessary, a person can forgo them or drive them lower if their income falls.
In planning your retirement, you’ll want to consider the types of expenses that are one-off. Some common one-off retirement expenses people have to budget for include:
When building your retirement budget, you need to understand the forms of income you’ll be dependent on. There are typically two types: regular and irregular.
Irregular or ‘potential’ income sources are the ones you can access by choice. Regular income sources include types you can expect to pay you on a fortnightly or monthly basis like your pay-cheque once did. Usually, regular income sources include:
An account-based pension (or allocated pension) is a superannuation-based product designed to be a regular income stream. It can be bought with money from your superannuation when you retire if you have reached preservation age.
An account-based pension is set up to last as long as the money allocated to it lasts but is not a guaranteed income-for-life product.
Typically, when you select an account-based pension product from your super fund, you get to choose:
An annuity is a financial investment that provides you with a series of secure payments – monthly, quarterly, half-yearly or yearly – either for a fixed term or the rest of your life, in return for a lump sum.
How are the lifetime annuity regular payments worked out? The number of your regular payments will depend on several factors, including the options chosen, prevailing market rates, your age, gender and the size of your initial investment. Payments are set at the time of your investment and are guaranteed. They could increase over time with indexation if you choose this option.
How much money do you have to invest in an annuity? Most annuity providers require a minimum investment of $10,000, and there is generally no upper limit on the amount you can invest.
There are strict policies and plans in place to ensure the capital in the statutory fund stays above the APRA-required amount, so current and future payments can always be met.
The Australian Government Pension Loans Scheme is a scheme offered by Services Australia that gives Aussies (who meet specified criteria) access to a non-taxable fortnightly loan from the government. This is often used to supplement retirement income and is seen as an important tool in funding retirement income in Australia with the enormous wealth sitting in a property.
You go to Services Australia or the Department of Veterans Affairs to apply. You can then choose the amount of the loan you draw down every fortnight, but you are limited by the fact that the combination of your pension income and your Pension Loans Scheme repayments cannot exceed the maximum fortnightly pension rate. The loan you draw is secured against property or real estate that you and/or your spouse own in Australia only. The amount you offer as security for this loan can be chosen by you, but there’s a clear maximum you can borrow based on you and your partner’s age and how much you offer as security for the loan.
The Government Pension Loans Scheme is always paid as a regular income stream, never as a lump sum, so those seeking lump-sum drawdowns will need to look into other solutions. The loan must be repaid, along with all costs and accrued interest to the Commonwealth Government, and repayments can be made at any time. Loan payments can also be stopped at any time.
There are specific eligibility criteria for the Pension Loans Scheme. You or your partner must be Age Pension age, you must get or be eligible for a qualifying pension, you must own real estate in Australia that can be used as security for the loan, and the property must be appropriately insured. You also must not be insolvent or bankrupt.
A reverse mortgage or home equity release
A reverse mortgage is a loan from a finance company that uses your home as security. Depending on how old you are, the loan can usually be drawn down as: a lump sum, a regular income stream paid into a bank account, a line of credit facility you can draw down as needed, or any combination of these.
You take out a reverse mortgage loan after the age of 60, while you are living in your home. You do not have to make repayments against it while you live in your home. The interest rate, which is usually higher than a standard home loan, is compounded, so it grows over time. You must pay back this loan either when you sell your property or when your home is sold after your death.
Any lender or broker offering you a reverse mortgage must go through projections on how your reverse mortgage will impact you over time. Ask for a copy of these and speak to an independent financial adviser for additional guidance.
In 2012, a change was made to all reverse mortgages offered in Australia to include ‘Negative Equity Protection’. This is important to note, as it means that a lender can no longer claim more than your house is worth at the end of your loan period, or, if they do, they must pay back the borrower. If your loan was taken out before this change in 2012, please seek advice on negative equity protection.
Once retired, some experts recommend splitting up your superannuation balance this way:
How do I create a retirement plan?
Here is a great four-step process for making a retirement plan: Step 1. Write down all your goals and ambitions for your retirement. Be as specific as possible. Step 2. Divide these goals up into essential, discretionary and one-off expenses and calculate how much you need to achieve those goals. Step 3. Assess your assets and income, understanding how you plan to invest and what potential regular and irregular income is likely to be available to you (through the Age Pensione etc). Step 4. Review this process and update your goals, plans, expenses budget, and income strategies regularly.
How do I plan to retire at 60?
Assess your retirement goals: the age you want to retire, the things you want to do in retirement, the expenses you need to accommodate in order to live comfortably. Understand how much money you need to fund your expenses if you are planning to retire at 60 and expect to live to about 85 years (average life expectancy in Australia). Understand if you will be eligible for the Age Pension and at what age. Calculate how much income you can generate from your existing assets and investments, and how this will last throughout your retirement. Understand any top-up strategies that might be required and what they will be (such as reverse mortgage or downsizing) to free up cash. Manage your income and expenses carefully, to ensure you maintain your budget.
How much do I need to retire comfortably at 65 in Australia?
The basic rule of thumb often cited by financial gurus is that you need at least 70 per cent of your later-life annual pre-retirement salary to retire comfortably. But this is not an official number. The Retirement Standard, a benchmark updated by ASFA, defines a comfortable income in retirement for those aged around 65 years of age in March 2021 as: Single: $44,412 per year Couple: $62,828 per year
What is the average life expectancy of an Australian aged 65?
Men aged 65 in 2017–2019 could expect to live another 20 years - taking their average life expectancy to 85 years. Women aged 65 years can expect to live another 22.7 years, to 87.7 years.
What life expectancy should I plan for in my retirement plan?
Your retirement at age 65 could last 20 years or it could last 30 years. Most advisers suggest you take a conservative view of your life expectancy and plan to live longer than you think you will.