Age Pension and the Superannuation Sweet Spot?


By Mark Teale

What am I talking about?

I will try and provide a very simple explanation.  The “Superannuation Sweet Spot” is recent terminology referring to the amount of money a person or couple needs to have saved in superannuation to ensure they achieve a reasonable level of income while maximizing their age pension.

There have been many articles written in the press concerning this matter with suggestions that an amount of approximately $300,000 in superannuation for a single person who owns their home is sufficient, and $400,000 in superannuation for a couple who own their own home is more than adequate.

Viewing the situation on the following table may give you a better idea:

Situation Superannuation Drawdown from Super Age Pension Total Income
Single Home-owner $300,000 $15,000 $19,210 $34,212
Couple Home-owner $400,000 $20,000 $33,272 $53,272

Now the argument, rightly or wrongly, is that if you can achieve these levels of income in partnership with the age pension, what is the incentive to save and contribute any more to superannuation?

For example, to ensure that you maintain a similar income without the age pension you need to have the following amounts in superannuation –

  • Single homeowner – $684,240
  • Couple homeowner – $1,065,440

This assumes the minimum level of income (5% between the ages of 65 and 74) is being drawn from super.

So, to a certain extent I can understand – what is the incentive for me to save and sacrifice more of my salary into superannuation if as a couple, I can retire now, wait a couple of years, apply for the age pension and have an income of $53,272 tax-free per annum?

Let me run through a couple of very simple reasons:

  • My Comfortable Retirement – the blog I wrote a couple of weeks ago. If you read this blog, I am sure you will agree $400,000 and an income of $53,272 per annum will certainly not be sufficient for me to achieve all I want in my retirement
  • Secondly, my wonderful partner, Donna, is a couple of years younger than myself, 4 and a half years to be precise, and it means that my plans of applying for the age pension would need to be deferred until she reaches the age of 67 – 10 years from now.
  • Thirdly, from a health perspective, if I do wait five years after I retire for Donna to retire and become eligible for the age pension, I am sure I would become extremely bored and drink a lot more wine than my doctor says is advisable.
  • Finally, as we have seen on numerous occasions over the years just like superannuation, the legislation surrounding the payment of age pension is constantly changing, meaning that to some extent my cash flow would be subject to change on a regular basis as well

Qualifying for an age pension is not and should not be anyone’s financial or retirement objective.  And no, just because you or I have worked all our lives and paid taxes does not mean that we should have an automatic right to the age pension.

So, I firmly believe that when we talk about the “Superannuation Sweet Spot”, it should not be in the context of the ideal balance of funds a person needs to have saved in order to maximise the appropriate age pension entitlement to achieve their required cash flow. It should be in reference to a person maximizing their enjoyment in retirement.

Now everyone’s idea of enjoyment in retirement will be different so I can only speak from my perspective.

However, I do believe that the incentive for me and for everyone who works is to have enough superannuation to not have to rely on the safety net of an age pension.  Why shortchange your retirement by not achieving all you can and all you want to, because someone tells you the income and assets means test associated with the age pension is a disincentive to a person building a substantial superannuation balance.

I am certainly going to grow my superannuation balance as much as I am able over the next few years to ensure I can achieve “My Comfortable Retirement”. I will not shortchange my enjoyment in retirement by giving away assets or having as my retirement objectives compromised by only achieving my “Superannuation Sweet Spot” in order to qualify for an age pension.

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