This is the essential guide to preparing a retirement plan, providing an overview of all the essential information you need in the period from about 2-3 years before retirement, right up to the big day.

How much do I need to retire comfortably?

‘The Retirement Standard’ is a simple baseline retirement expenses budget produced and monitored by the Association of Superfunds of Australia (ASFA).  It is modelled to help retirees understand and plan for what their basic expenses can be for either a comfortable or a modest standard of living in your post-work years.  This data is updated quarterly to reflect changes to inflation data and is underpinned by a full example budget you can download for each.  

Modest Lifestyle

The average cost-of-living budget required by those aged around 65 years of age who are planning to retire with a modest lifestyle is: 

Single: $28,254 (total per year)

Couple: $40,829 (total per year)

Comfortable lifestyle

The average cost-of-living budget required by those aged around 65 years of age who are planning to retire with a comfortable lifestyle is:  

Single: $44,412 (total per year)

Couple: $62,828 (total per year)

(Data last updated: March 2021)

How and when can I access my super? 

You can access your superannuation (or start a transition to retirement income stream) when you retire 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 pension age. 

Will I be eligible for government entitlements?

As you plan for your retirement it is 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

The age pension is the core retirement benefit available to older Australians.  

To qualify for the aged pension you need to be

• Aged 66 or over, depending on your birth date
• Be an Australian resident and have lived in Australia for 10+ years at a minimum
• Meet the assets and income tests (See more: How the assets and income tests work)

How much does the Age pension pay? 

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 (Data last updated: March 2021):

Singles:  $868.30 a fortnight or $22,575 a year

Couples:  $1,309.00 a fortnight or $34,034 a year

These amounts do not include any supplements or other benefits.

For more information, see the Age Pension on the Services Australia website. 

If you qualify for the age pension, you may also qualify for one or more of the following:

Pensioner Concession Card

A Pensioner Concession Card can give you access to cheaper medicines, bulk billed doctor visits, help with hearing services and discounts on public transport in some states too.  It is a benefit offered to people who: 

• Are aged 60 or over
• Receive the aged pension or a list of other eligible payments from Centrelink

Gives you access to cheaper utility and medical bills, and discounts on public transport in some states. You must:

• be aged 60 or over, and
• get the Age Pension or other payments from Centrelink

See more about the Pensioner Concession Card, how you qualify and how you get one on the Services Australia website.

Seniors cards

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: 

• be aged 60 or over, and
• work less than 20 hours per week

You can check your eligibility for a Seniors Card in your state or territory through the links below:

• Australian Capital Territory
• New South Wales
• Northern Territory
• Queensland
• South Australia
• Tasmania
• Victoria
• Western Australia

Commonwealth Seniors Health Card

The Commonwealth Seniors Health Card is a benefit offered to those of a pension age who meet an income test but are not eligible for the Pension Concession Card.  It allows you to get cheaper prescriptions from the pharmacy and cheaper medical appointments.  To qualify you must:

• be of Age Pension age,
• meet an income test, the criteria for which is laid out on the Centrelink website and updated on the 20th September each year, and
• not receive regular Centrelink payments

For more information please see the Commonwealth Seniors Health Card on the Services Australia website.

Building your retirement budget – understanding your expenses

Expenses increase in areas such as medical and travel when you’re retired, while your income stream decreases, so it is important to understand how you achieve a balance between income and expenses as early as possible, and plan accordingly. 

There is three core elements to consider when building a retirement budget:  

How long you plan to live for

To plan with some level of accuracy, you need to consider the age you plan to retire at, and the age you plan to live until.  This is commonly known as your longevity, and this underpins all retirement budgets.

Your expenses – which you should calculate in three parts

Your essential expenses

Normally an Australian retiree’s budget for essential expenses falls into the following categories: 

• Housing
• Electricity and gas
• Food & groceries
• Bundled home phone, internet and mobile
• Household goods and services including hairdressing, appliances and personal care items
• Clothing and footwear
• Transportation

Each of these are necessary items that a person cannot live without

Your discretionary expenses

Australian retirees commonly allocate a discretionary expense budget to span items related to leisure, entertainment, 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 should drop.  

Your one off expenses

In planning for your retirement expenses you’ll want to consider the types of expenses that are one-off.  Some common one-off retirement expenses that people have to budget for include: 

• Planning for a loved ones funeral costs
• A large one-off holiday 
• A caravan or boat purchase
• Modifications to your home to allow you to ‘age in place’
• Home care or aged care expenditure projections
• Paying for a child’s wedding
• Upkeep and repairs on your home
• Annual maintenance of a motor vehicle
• Emergency funds

 It is important to plan for your liquidity needs before you retire and factor them into your budget for such large items. 

Building your retirement budget – understanding your income

When building your retirement budget you need to understand the forms of income you will be dependent on.  Your regular income sources are retirement income types that you can rely on to pay you a bit like your pay-cheque did, on a fortnightly or monthly basis and irregular or ‘potential’ income sources you can access by choice.  Usually retirement income types that fall into the regular category include: 

An Account Based Pension

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 super 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:

• how much you want to transfer to the ‘pension phase’ of the product to generate your income stream from
• the amount and regularity of your account based pension payments (these are usually limited by a minimum or maximum amount allowed)
• how you want your super invested (through your fund)

An Annuity

What’s an annuity?

An annuity is a financial investment that in return for a lump sum 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.

There is two core types of annuity

• Fixed-term annuities have a start and end date. The term of the annuity can range from one year to 50 years. You can choose to have your lump sum returned to you at the end of the term, or gradually as part of your regular payments.
• Lifetime annuities provide payments for the rest of your life, or for the life of a second person after you pass away.

How are the lifetime annuity regular payments worked out? The amount 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.

Why do people choose to invest in annuities? 

Certainty of income.  Annuities can protect your retirement income from the rising cost of living, share market turbulence, and the possibility of outliving your retirement savings. Because your payments aren’t impacted by share market fluctuations, there is some level of certainty on your level of income for life regardless of how long you live.

Concessional tax treatment. Annuity payments are generally tax-free if you purchase the annuity with superannuation money after the age of 60. Where you purchase an annuity with non-superannuation money, part of the payments may be included in your assessable income and subject to tax.

They can be passed on. When you buy a lifetime annuity, you can choose to have payments continue to be paid to your spouse when you die. As part of the options when you purchase a lifetime annuity, you can also pre-set a time period that should you pass away within, a lump sum payment may be made to your beneficiary or estate.

No management fees. Your annuity provider generally won’t charge fees for managing your lump sum as the costs of running the annuity are taken into account when your payments are determined.

The guarantee of the provider. Annuity providers are regulated under the Life Insurance Act 1995, which governs the provision of annuities in Australia. Under this Act, annuity providers are subject to prudential regulation by the Australian Prudential Regulation Authority (APRA) to help ensure they are able to meet their obligations to investors, and must hold a minimum level of capital in the statutory fund.

There are strict policies and plans in place to make sure the capital in the statutory fund stays above the APRA-required amount, so current and future payments can always be met.

The Age Pension

See more on the Age pension here.

Income stream from a Government Pension Loan Scheme

The Australian Government Pension Loans Scheme is a scheme offered by Services Australia that lets Australians that meet a specified criteria get access to a non-taxable fortnightly loan from the Government.  This is often used to supplement retirement income and is seen to be an important tool in funding retirement income in Australia in the years ahead from the enormous wealth sitting in property.

How the Pension Loans Scheme Works

You go to Services Australia or the Department of Veterans Affairs to apply.  You can 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 loan 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 in own in Australia only. The amount you offer as security for this loan can be chosen by you but there is a clear maximum you can borrow based on you and your partners 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 seek other solutions. The loan must be repaid plus all costs and accrued interest to the Commonwealth Government and repayments can be made at anytime.  Loan payments can also be stopped at anytime. You can find more information on the Government Pension Loan Scheme here.

Criteria and eligibility for the pension loans scheme

There are specific criteria for being eligible for the Pension Loans Scheme, including that you or your partner must be Age Pension Age, you must get or be eligible to get 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 any combination of: a lump sum, a regular income stream paid into a bank account or as a line of credit facility you can draw down as needed.

How does a reverse mortgage work?

You take out a reverse mortgage loan after the age of 60, while you are living in your home and do not have to make repayments against it while you continue to live there.  The interest rate, which is usually higher than a standard home loan is compounded, so it grows over time.  You pay back this loan either when you sell your property or when your home is sold after your death.

Important consumer protections on reverse mortgages

Any lender or broker offering you a reverse mortgage much go through projections on how your reverse mortgage will impact you over time.  Ask for a copy of these and speak to a financial adviser to get independent guidance.

In 2012, a change was made to all reverse mortgages offered in Australia to install ‘Negative Equity Protection’.  This is important to note as a lender can now, no longer claim more than your house is worth at the end of your loan period.  If your loan was taken out before this change in 2012, please seek advice on negative equity protection.

Frequently asked questions

How do I create a retirement plan?

There 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 you can be.

Step 2.  Then divide these up into regular expenses 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 income is likely to be available to you.

Step 4. Review this process and update your goals, plan, expenses budget, income strategies regularly.

How do I plan to retire at 60?

1. Assess your retirement goals – the age you want to retire, the things you want to do in retirement, the expenses you need to accomodate for you to live comfortably)
2. Understand how much money you need to fund your expenses if you are to planning to retire at 60 and live to an average lifespan
3. Understand if you will be eligible for the age pension and at what age
4. Calculate how much income you can generate from your existing assets and investments and how this will last through your retirement
5. Understand any top-up strategies that might be required and what they will be (like reverse mortgage or downsizing to free up cash)
6. 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% of your later-life annual pre-retirement salary to retire comfortably.  Of course, this is not an official number.  The Retirement Standard, a benchmark updated by ASFA quarterly defines a comfortable income in retirement for those aged around 65 years of age as:

Single: $44,412 (total per year)

Couple: $62,828 (total per year)

What is the average life expectancy of an Australian at age 65 today?

Men aged 65 in 2017–2019 could expect to live another 20.0 years taking their average life expectancy to 85 years and women aged 65 years can expect to live another 22.7 years to achieve a life expectancy of 87.7 years. (Source AIHW 2021)