Retirement income explained
Retirement | 7/10/2021 |
6 min read
A monthly pay cheque provides stability and peace of mind. You know when it’s coming, you know how much it will be, and you can structure your expense around it.
Retirement can be daunting because it means that regular income is no longer there.
But that doesn’t have to be the case.
Understanding your retirement income options, and how your super works once you retire, can help you structure your finances in a way that makes sense, and provides the same peace of mind as a job.
Super and retirement income: the basics
ASFA’s Retirement Standard provides guidelines for how much super you need to enjoy a comfortable retirement. While everyone’s circumstances are different, it's a great starting point.
According to the latest numbers, a couple will need a combined super balance of $640,000 and an annual income of $63,352 to live comfortably.
For an individual it’s $545,000 in super and in annual income of $44,818.
That income number may look modest. But it can go a lot further than you expect – here’s why.
1. Retirement income isn’t taxed
Depending on your salary, you could be paying up to 45% in income tax. While the average tax rate is closer to 32.5%, that's still a significant sum of money that will never see your bank account.
For example, someone earning $80,000 a year would be taxed approximately $16,500, leaving them with $63,500 in actual take home income.
Here's the good news. Once you retire, income tax may no longer be an issue. When you retire with an Account Based Pension, the money you draw down from your super is tax free for anyone aged over 60. Which means it can go a lot further.
2. Mortgage payments are no longer a factor
How much of your current income is spent on mortgage payments? The average Australian spends 25% of their income servicing a mortgage. If you’re on $80,000, that’s a further $20,000 (on top of your tax) you’ll never see.
In other words, when you deduct tax and mortgage repayments, that $80,000 income is about $43,500.
So, all things being equal, for an individual, drawing down the ASFA comfortable living standard of $44,818 may be equivalent to a working salary of $80,000.
Now obviously this is a very rough, back of an envelope calculation, and it doesn’t include individual circumstances, but it helps put retirement income into perspective.
Regular retirement income
Learn about Equip's Account Based Pension
Accessing your money in retirement
The simplest way to access your super when you retire is to start an income stream. This may take the form of an Account Based Pension. If you’re already an Equip member, this can be as easy as filling out a form.
Just like your super account, you can decide how you’d like to invest your money, and can choose from a variety of different investment options. Everything from Growth Plus through to something more conservative like Fixed Interest (and everything in between). That means your money can continue to grow and earn interest in retirement (and this is tax free if you are over 60).
The key difference is you can now start drawing down this money to finance your retirement. That means you can nominate an annual amount and how often you’d like to be paid. Most people opt for a monthly payment, but it’s up to you.
If you’re not quite ready to retire, a Transition to Retirement pension can help you make the most of your super in the lead-up to retirement. Either way, you can learn more about our Account Based Pension and Transition to Retirement Pension online, then book an appointment with one of our planners to talk through your options and get started.
What about the age pension?
In order to receive a full or part-pension in retirement you need to meet the Government's income and asset test thresholds.
The main thing to note is that the pension operates on a sliding scale. Which is why most Australians retire on some combination of their super and the pension. This means that even a modest super balance can be topped up with the pension.
For a better idea of how your super and the pension can work together try our retirement calculator. It can show you how long your super will last, allows you to adjust annual income, and make various tweaks to reflect your lifestyle.
Retire better with Equip
Everyone’s retirement goals and aspirations are different. But knowing you’ll have the income to support them is important.
The best way to plan ahead is to speak to one of our financial planners. They can explain your options, help to prepare you for retirement, and structure an income stream that takes into account your super, the age pension, and any other assets you may own.
Also, the initial appointment is available at no additional charge.
Speak with a financial planner
Plan a retirement strategy that works for you
This information is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice. Togethr Trustees Pty Ltd ABN 64 006 964 049, AFSL 246383 ("Togethr") is the trustee of the Equipsuper Superannuation Fund ABN 33 813 823 017 ("Equip" or "The Fund"). Past performance is not a reliable indicator of future performance.
Togethr Financial Planning Pty Ltd (“TFP”) (ABN 84 124 491 078, AFSL 455010), trading as Equip Financial Planning, is licensed to provide financial planning services to retail and wholesale clients. TFP is owned by Togethr Holdings Pty Ltd (ABN 11 604 515 791). You can obtain the TFP Financial Services Guide and/or Privacy Statement by contacting our Helpline on 1800 682 626. This is general information only and does not take into account your personal objectives, financial situation or needs and therefore should not be taken as personal advice.