‘Can I afford to buy a holiday on my modest retirement income?’

Q) After using most of the money from the sale of my house (four years ago) to buy a place in a retirement village, there was $150,000 left over. I deposited the money into a term deposit and have been withdrawing the interest paid for expenses. My only income is the Age Pension and a small account-based pension from my superannuation, which has almost run out. So far, I seem to be managing, but I would love to go on a holiday. My main worry about using my savings for a holiday is that, at a later stage, I may need to pay for home care. I am 83 years of age, what do you think I should do?

These types of questions are the most challenging because making the most of what we have becomes critical with relatively modest sums of money.

At 83, we would like to assume that your ability to holiday some time in the future is unquestionable. Afterall, enjoying life while you can is why we have money in the first place!

The key will be to ensure that your lifestyle is not compromised now or in the future. Of immediate interest is what happens when the small account-based pension runs out.

The full Age Pension is presently $24,770 per annum (for a single). If we assume you are currently spending about $30,000 per annum, then each year there is a $5,300 shortfall that will need to be covered. It might be wise to effectively set aside that amount for, say, the next 10 years. It is also highly probable that your cost of living, in real terms, will decline by the time you reach 93. Rounded up, we could allocate $55,000 for the purpose of meeting the shortfall from the account-based pension (over 10 years).

We should also allow for unexpected outlays. For that purpose, we might set aside a further $40,000 (for the 10 years).

Finally, if your final move ends up being into an aged care facility, then we might allow a further $40,000 to cover the accommodation costs for the period it might take to sell your retirement village unit.

Being on a full pension means it is unlikely you will be asked to pay any means-tested fees towards a home-care package. Equally, if you move into aged care, the Age Pension is likely to cover the care costs. The basic daily care fee is capped at 85 per cent of the full single rate of pension, so the amount leftover could go towards extra services.

When the retirement village unit is sold, that money could be contributed towards your accommodation costs.

Under this scenario, we keep $135,000 in bank accounts and it leaves you with about $15,000 to spend on a trip. Just be sure to send the team at Starts at 60 a postcard!

For more great financial tips from Nick Bruining, head here.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.