The Age Pension is No Holiday

I took a holiday a few weeks back and while checking my emails I saw the latest report on how much it costs to live a comfortable retirement. In order for a couple to live a comfortable retirement, the report says they need an income of approximately $59,160 each year.

Now, the figure of $59,160 didn’t surprise me all that much, given this has been the standard for many years, but while on my trip it struck me how the cost of living and doing those extra things is starting to creep up more and more.

What really struck me was how something as simple as a two-week holiday in Australia was starting to be really expensive. Case in point, I calculated that for a husband and wife to do a scenic driving tour around somewhere like Tasmania or Victoria could easily end up costing up to $6,000!

Have a look for yourself;

The interesting thing is that none of those figures seem extravagant. A hotel for $150 a night is not going to be terrible – but it certainly isn’t luxury 5 star.

Now, fast forward to your retirement and ask yourself – how does $6,000 fit into my budget as a retiree? Is it easily afforded? Does it cause a major black hole? Or can you afford to add an extra week to your holiday (or even go overseas)?

A determining factor for your response will be whether you are fully self-funded, fully reliant on the Government Age Pension or a combination.

Expanding on this, I have put 2 charts together, so you can see how much this domestic holiday would take up of your pension income – based on if retired on the Age Pension Solely or with sufficient capital to achieve a comfortable income in retirement. (For ease I have based our assumptions on couple rates).

Overall, it doesn’t look too bad. Until you start to look at the numbers.

See, on a comfortable retirement, whereby you are funding your retirement income through a combination of Age Pension, Super savings and other income, you are looking to still have $53,020 left to meet your ongoing expenses – that works out to be about $1,019 per week.

Comparably, if you were to go it alone on the Age Pension – you’re left with $28,242 – or about $543 a week – for two people.

Put another way – the maximum Age Pension is approximately $1,322 per fortnight for a couple. In order to save for a $6,000 holiday that couple must set aside between 9 and 10 weeks of Age Pension Income – for a two-week holiday.

So, what’s the point?

Firstly, a holiday does not have to cost $6,000. After all there is camping, there are motels, there are day trips and weekends away. However, retirement is about getting on the open road and exploring – doing things you’ve always wanted to do.

It turns out though, these things cost a little more than we might imagine.

The point then, is that if you foresee your retirement being filled with adventures and trips away – you would do well to have a plan in place to ensure you are not surprised by the cost of things, when you do eventually retire.

Yes, the age pension is available for many retirees and it is likely to play an important role in financial planning strategies for the foreseeable future – however if you want to live a comfortable, rather than a modest retirement, you need to take a hold of your retirement plan.

After all the Age Pension (alone) is no Holiday.

Sources

http://www.superannuation.asn.au/resources/retirement-standard

https://www.humanservices.gov.au/customer/enablers/payment-rates-age-pension