Retirement
Retirement trap hurting saving Aussies
Australians are being warned that they will need half a million dollars to escape the “retirement trap” of a reduced pension due to assets meeting certain thresholds, according to an industry expert.
Retirement trap hurting saving Aussies
Australians are being warned that they will need half a million dollars to escape the “retirement trap” of a reduced pension due to assets meeting certain thresholds, according to an industry expert.
According to BetaShares, retirees who lift their savings to between $350,000- $600,000 may ironically see their income diminish.
BetaShares senior investment specialist Dr Roger Cohen said, “Common wisdom tells us that accumulating more savings through our working lives should result in higher income in our retirement years.”
“However, our analysis shows that, for certain people, under the current system, accumulating more money can actually produce the reverse.”
The current retirement system in Australia sees retirees drawing income from a combination of superannuation, the Age Pension and external assets.
The pension is means-tested, with the level of entitlement calculated using an income test and an assets test. These entitlement levels and associated reduction in the pensions are the primary drivers behind the “trap”.
More specifically, for an individual, there is an income range between $174 and $2,026 per fortnight, where for every additional dollar earned, the pension is reduced by 50 cents. This effectively halves the value of additional earnings for retirees in this range.
“For a retiree caught in the ‘retirement trap’, additional assets are better off spent, or, if they are invested, must generate returns that are well in excess of 7.8 per cent per annum to exceed the pension entitlements that are lost,” Dr Cohen said.
“Unfortunately, such investments generally entail taking risk above levels, which are commonly recommended for retirees.”
“The transition from full entitlements to the Age Pension to no entitlements needs to be smoother. It is certainly an undesirable situation that for some people, more is not necessarily more,” he added.
“Without considering the eventual policy changes from the Retirement Income Review, our research shows that people in retirement can only escape the ‘retirement trap’ if they accumulate an asset base well over half a million dollars.”
nestegg has previously reported how Australia could be heading for a retirement crisis.
RELATED ARTICLES
About the author
About the author
Retirement Planning
Majority of Australians anxious about retirement as super knowledge gaps persist, report finds
A new study by Aware Super has revealed that a significant majority of Australians aged 45 and over are feeling anxious about retirement, with nearly nine in ten respondents concerned they will run ...Read more
Retirement Planning
AMP’s MyNorth Lifetime boosts financial security and retirement income
AMP has reported that its MyNorth Lifetime retirement income solution is delivering significant financial benefits to retirees, with an average uplift of 50% in total income. Read more
Retirement Planning
Retirement living sector calls for planning reforms amid declining construction confidence
The Retirement Living Council (RLC) is urging governments to streamline planning systems to boost housing supply, following a decline in confidence in age-friendly construction activity. Read more
Retirement Planning
New laws to boost women's retirement savings through paid parental leave
The Australian Parliament has passed new legislation that will see superannuation guarantee contributions paid on the Commonwealth Government's Paid Parental Leave (PPL) scheme. Read more
Retirement Planning
Planning systems under scrutiny as Australia's ageing population grows
The Retirement Living Council (RLC) has called for governments to address planning system shortfalls in preparation for Australia's ageing population, following the release of new data from the ...Read more
Retirement Planning
Retirement Living Council calls for focus on seniors' housing as population ages
The Retirement Living Council (RLC) has urged governments across Australia to prioritise age-friendly housing solutions in response to new data revealing an ageing population. Read more
Retirement Planning
Macquarie University study reveals benefits of guaranteed income in retirement
A new study by Macquarie University's School of Psychological Sciences has found that mental health, enjoyment, and financial security are key benefits of incorporating guaranteed income and annuities ...Read more
Retirement Planning
Retirement villages offer affordable housing amid market crisis, study finds
Retirement villages are providing a significantly more affordable housing option for older Australians compared to the traditional property market, according to new data released today. Read more
Retirement Planning
Majority of Australians anxious about retirement as super knowledge gaps persist, report finds
A new study by Aware Super has revealed that a significant majority of Australians aged 45 and over are feeling anxious about retirement, with nearly nine in ten respondents concerned they will run ...Read more
Retirement Planning
AMP’s MyNorth Lifetime boosts financial security and retirement income
AMP has reported that its MyNorth Lifetime retirement income solution is delivering significant financial benefits to retirees, with an average uplift of 50% in total income. Read more
Retirement Planning
Retirement living sector calls for planning reforms amid declining construction confidence
The Retirement Living Council (RLC) is urging governments to streamline planning systems to boost housing supply, following a decline in confidence in age-friendly construction activity. Read more
Retirement Planning
New laws to boost women's retirement savings through paid parental leave
The Australian Parliament has passed new legislation that will see superannuation guarantee contributions paid on the Commonwealth Government's Paid Parental Leave (PPL) scheme. Read more
Retirement Planning
Planning systems under scrutiny as Australia's ageing population grows
The Retirement Living Council (RLC) has called for governments to address planning system shortfalls in preparation for Australia's ageing population, following the release of new data from the ...Read more
Retirement Planning
Retirement Living Council calls for focus on seniors' housing as population ages
The Retirement Living Council (RLC) has urged governments across Australia to prioritise age-friendly housing solutions in response to new data revealing an ageing population. Read more
Retirement Planning
Macquarie University study reveals benefits of guaranteed income in retirement
A new study by Macquarie University's School of Psychological Sciences has found that mental health, enjoyment, and financial security are key benefits of incorporating guaranteed income and annuities ...Read more
Retirement Planning
Retirement villages offer affordable housing amid market crisis, study finds
Retirement villages are providing a significantly more affordable housing option for older Australians compared to the traditional property market, according to new data released today. Read more
