Retirement Strategies: Pension Basics

Lately the brain has been in terrible form.

  • Made a couple of mistakes at work
  • got my wedding anniversary year wrong for this post [link]
  • got my tax calculations done wrong for this post [link]
  • got the wrong the birth dates of both kids reversed for a centrelink claim
  • prob more errors undiscovered

Weariness or aging, that doesn't bode well.

Fortunately the errors at work were reversible. My wife was in magnanimous mood and reminded me we are married for 6 years and not 5. Satki Yoda rewrote the tax calculations for me to copy and paste and save me lotsa time running through it again and the claim was properly settled by the wife. With air temperature running at a fine 17 degrees Celsius tonight, my creaking brain seems to be making less noise. This post is going to be alright.

Encik G has been giving me some insights on landlording and stuff and how those relate to a retirement strategy as a whole. In his summary, I gathered that having a strong passive income and a government pension scheme are mutually exclusive. Since this is the first time I read about pension stuff in Australia, the information I can absorb is not going to be exhaustive. That is not going to change unless I start somewhere.

As time goes by, hopefully, I will be able to have a strong grasp of what's happening. That has always been the way I do things and that was how we figure out how to submit a PR application here ourselves, tax submission and other government documents. Reading up yourself is always the best thing you can do. Only then, you can avoid being confused by hearsay. Hearsay is good as a point of reference but often inaccurate due to misrepresentation or misinterpretation. The good thing about government websites in Australia is that things are transparent. They try to simplify things to avoid adding to the information overload and can end up vague at times. Nonetheless, if one has the patience to wade through these, it will be highly beneficial to him or her.

Long shitty intro aside, here are the pension basics I need to know.

Age requirements

Like Singapore, the Australian government has been increasing age eligibility limits for Age Pension. By 2023, the eligible age will be increase from 65 to 67 years old. Since I am not retiring at 2023, I can expect this figure to be much higher by the time I am, or worse, totally removed as a benefit due to insustainability. That itself is a reason big enough for me not to rely on this scheme as part of a retirement strategy. In fact, nobody should do that. This should be regarded as a last resort or a safety net if things go horribly wrong in future. That is the reason why we need to talk about retirement strategies - to prevent things from going horribly wrong.

Residence requirements

Being an Australia resident for a continuous period of at least 10 years, or for a number of periods that total more than 10 years with one of the periods being at least 5 years. Straight forward enough. Basically they are saying, if you cannot make up your mind being committed to this country, you don't get pension. For migrants around my age, they will easily meet this requirements twice fold or more by the time they retire.

Income test

This is where things are starting to get interesting. Unless you are permanently blind at the point of application, you are subjected to an income test. This may end up useful for me after all, if constant online gaming after retirement makes me blind. Otherwise, 

The income test for a single retiree is up to $162 per fortnight. For every dollar over $162, your pension payment will be reduced by 50 cents. What this mean is that if you don't have a single source of income by retirement age, you will get full pension payment (provided you pass the asset test too). If you have a modest income from any kind of investment though, your pension payment will be reduce greatly or even to nothing. This is the reason why Encik G implied that enjoying a good passive income and pension are mutually exclusive.

Take for example, 

If you own a simple apartment that gives you a rental net income (less all expenses) of $300 a week, that works out to be $600 a fortnight. So you will be,

$600 - $162 = $438 over the income limit. 

Since for every dollar over the limit, payment is reduced by 50 cents, 

$438 x 0.5 = $219 will be deducted from your pension payment. 

I assure you, nothing much will be left over, if there is still any at all. Anyway, that is how income test works. So the more income you have, the faster your pension payments evaporates. Simple enough.

Asset test

Too big a topic to include in this post. Require extensive reading about it. To be filled in future

Payment rates for Age Pension

Currently, the maximum rates for a single is $867.00 a fortnight. This figure is already inclusive of energy supplement and pension supplement. That is for retirees who fulfilled the requirements above and had no reduction from both the Income and Asset test. So that works out to $433.5 a week. Not to shabby if we consider we hardly have teeth to eat much by then. If this pension scheme is around by the time I retire, I can survive on such money. Not a problem at all. I might as well go for holidays, drive to Darwin to ka jiao Chiobu Kopimaid and buy a new car every year lah. Worry about properties or stock investments for fark? Problem is I don't trust it to be around. If it is, good but me being me, I'll always assume the worst.

Anyway how does it work out with the example above?

Say if we have an apartment giving us a weekly income of $300/week, we have worked out that is going to cause a $219 reduction in pension payments. By deducting, we will be left with,

$867 - $219 = $648 a fortnight, $324 a week.
On top of that $300 a week rental income,
We will have $324 + $300 = $624 a week.

Hmm, that is still better off than having $433.5 a week to spend. I may even have enough to buy the petrol required to drive to Darwin after all. Accountants, please scrutinize for me again.

All information extracted from

Here is a piggy bank for you