Understanding the Government Aged Pension is important for planning your retirement, so you can see how it works with super. We'll look at eligibility for the Government Aged Pension and how it can make your super last longer. Will also look at how you can begin to access your super and other government benefits.
While you're working, your income is mainly the salary you earn. But when you retire, your income could come from a few different places your super savings, your personal savings. Any other investments you have. And the Government Aged Pension. The Government Aged Pension is an income support payment to help eligible older Australians afford their basic living expenses in retirement. More than 60% of Australians over the age of 65 receive extra income from the Government Aged Pension. Generally, to receive the aged pension, a person needs to be eligible pension age and an Australian resident who's lived in Australia for at least ten years. The age when you can start receiving the Government Aged Pension depends on when you were born. You'll find your eligible age on this chart.
If you've reached the required age, you'll also need to prove that you actually need the pension. To see if you're eligible the government uses income and assets tests. For couples, your combined assets and incomes will be tested. The income test looks at all the sources of income you receive. This includes income from financial investments such as super, savings and shares. The assets test measures the value of the things you own, including your car, furniture and other valuable assets like jewellery and boats. Once you've reached your aged pension age, the assets test will also include your super. The assets test does not include your home. Whichever test gives you the lower payment amount is the one that will be applied.
If you qualify for the Government Aged Pension, you'll receive a payment every two weeks. As of July 2023 that means a maximum of $1,064 for a single person, or $1,604 for a couple, or just below $28,000 a year if you're a single person and just below $42,000 a year for a couple, these amounts can change so you should check with Centrelink for current rates.
As we've just seen, the Government Aged Pension is designed to work with super and make it last longer. Now let's look at how you can start receiving your super as an income, which you can do once you've reached your preservation age. You'll find your preservation age on this chart. Remember, your preservation age is different from your government pension age, which was shown earlier. There are two ways to keep your money in super and convert it into a steady income, while you're still working or when you've retired. Once your account is set up, you'll receive payments directly into your nominated bank account. For both options since your money stays invested, it keeps earning investment returns, which means you could have more income throughout your retirement. And there are tax benefits to. Let's look at the first option. If you've reached your preservation age and you're still working, you can open a transition to retirement account. This can be good if you'd like to work less but still want to maintain your current pay. A transition to retirement account helps you ease into retirement by paying you an income from your super while you continue to work. So your super keeps growing as you start to wind down. And you could save on tax at the same time. The second option is to convert your super into income by opening a retirement income account with us. You can do this when you retire and meet your preservation age all once you've reached 65. A retirement income account lets you start withdrawing regular tax free income from your super, and because you're still invested, your super can keep growing. With this account, you can control how much and how often you receive payments and you can make changes whenever you need to. So now that we know more about income accounts, let's look at the benefits of staying
invested. Because if you keep your money invested, it could mean you could have more income to enjoy in retirement.
In this example, you can see the difference between withdrawing super and investing your money in a bank account, compared to leaving your money in super and receiving it as an income. Staying invested in super means you could have over $5,000 more each year. Over time, this could make a big difference to the amount you have to spend in retirement.
Now let's look at an example of how the government age pension can help make your super last longer. Eliza is 67 and has just retired. She lives with her pet dog in a house she owns and has paid off her mortgage. She has $300,000 in super but very few other assets and only a small amount in savings. Eliza works out she'll need $49,000 a year to spend in retirement. Then using the Centrelink payment finder tool, Eliza finds out she could receive about $28,000 per year from the Government Aged Pension. Eliza can make the most of her aged pension payments and use this $28,000 a year first, so she'll only need to withdraw $21,000 from her super each year. Without the Government Aged Pension, allowing for investment growth of 6% a year, Eliza's super would last just over six years. But with the Government Aged Pension, her super could last over 18 years until Eliza is 85.
Now, here's an example where the aged pension won't apply. Marg and Gino are in the seventies, married and retired. As high income earners they've paid off the mortgage on their home, they have about $600,000 combined in their super accounts, they also have a holiday home worth about $450,000 that they rent out. Their family home isn't counted towards their assets. However, using the Centrelink payment finder tool, they discover the combined value of their super and holiday home is above the assets test limit. They won't be eligible for the Government Aged Pension. So Marg and Gino will need to use their super and their rental income to fund their retirement.
As well as providing income to make retirement possible, the government offers benefits for retirees to help make life less expensive. If you received the Government Aged Pension, you'll also receive a pensioner concession card. This saves you money on things like medicine and health services. Depending on where you live, it could even save you money on gas, water, electricity, car registration and public transport. If you're not eligible for the Government Aged Pension, you might qualify for a seniors health card. This saves you money by lowering the cost of prescription medicines, health services, energy bills and transport. As you've seen, over 60% of Australians will use the Government Aged Pension to help bridge the gap between super, their savings and their desired retirement income. To make sure you're on track. Make a free appointment to speak to one of our experts at aware.com.au/book