Finding the sweet spot: How to earn more while having less in retirement

People with less superannuation can actually end up earning more retirement income - just by knowing how to use the systems of retirement well in Australia.

Happy Sunday morning again!

Each weekend I publish a column in The Age, The Sydney Morning Herald, Brisbane Times and WA Today money section. And this week’s really hits the spot - the SWEET SPOT where you can have less super and make more money than a self-funded retiree with a lot more money.

I’ve already received some great letters about this column! If you’ve got something to share - leave a comment on the post. Or email me (bec@epicretirement.net). I love ideas and inspiration for future columns!

I’m jumping the gun and putting up the Chrissy tree and lights today. Is yours up yet? Have a good one… and make it epic!

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In this short Sunday edition:

• SMH/The Age column: The sweet spot: How to earn more while having less in retirement

• Prime Time podcast: How an entire generation cracked the game of life: working longer, but stressing less, with Demographer Bernard Salt

• Christmas books: Is someone you know retiring or thinking about it? Here’s a Black Friday deal on How to Have an Epic Retirement

The sweet spot: How to earn more while having less in retirement

There’s this strange little anomaly in our retirement system that’s truly worth understanding. It’s the fact that people with less superannuation can actually end up earning more retirement income - just by knowing how to use the systems of retirement well in Australia.

It’s called the “sweet spot”, and it’s where both singles and couples with a lower superannuation balance leverage the age pension alongside their superannuation income stream to earn more in retirement income than someone with a far larger superannuation balance can at the same drawdown rates.

This begs the question: is it worth the grind to become a self-funded retiree, when starting retirement with a more modest super balance can still secure a moderate income?

To break down how to find the sweet spot – or the amount of money to be holding in superannuation when you hit pension age and meet the conditions of release – there are three things we need to understand. This will help maximise your income from the pension and super combined without being penalised for having more.

The first thing you need to pay good attention to is the pension assets test thresholds for the full pension. This is at the heart of the sweet spot and every time the assets test thresholds change, the sweet spot changes.

Right now, the limits for the full pension are $451,500 for couples and $301,750 for singles. If you have more than this, your pension income is tapered. And the taper rate is the second thing you need to understand.

No matter which way you look at it, the sweet spot is a good thing for those with average superannuation balances.

The taper rate is triggered on every dollar earned over the assets test thresholds, deducting $3 from the fortnightly age pension for every additional $1000 beyond the specified asset threshold.

In practical terms, this would mean a person is penalised by $78 of fortnightly pension income (26 multiplied by $3) for each extra $1000 in assets. So if you were to have more in super, you would need to be earning a return of more than 7.8 per cent on those monies to offset the impact of the taper rate on the age pension. Or, if you’re close to the assets test thresholds, you might find you earn more in total fortnightly income if you dispose of some of your hard-earned super, spending it on holidays, renovations, or quickly depreciating assets like cars and boats.

The third thing you need to understand is the impact of earning additional income on your bigger financial picture, particularly from working. If you are looking to the pension to deliver a significant portion of your retirement income, then you’ll want to understand the Pension Work Bonus, and the Pension Income Test Free Area which combined, from 2024, will offer you $11,800 in money you can earn from working before your pension income is reduced.

Let’s consider a straightforward example. Jenny and Jim, both 68 years old, have combined assets of $451,500 in superannuation and own their family home outright. Drawing the mandatory 5 per cent superannuation drawdown rate yields $22,575 from super.

Additionally, they receive a total of $42,988.40 from the age pension. In this scenario, their combined annual retirement income stands at $65,563.40, closely aligning with the amount deemed comfortable for retirement. They could also afford to earn an additional $11,800 from working without affecting their pension income at all.

In contrast, Alice and Bob, also 68, hold $1,200,000 in combined superannuation, fully own their home, and are ineligible for the age pension. Adhering to a 5 per cent drawdown rate, their annual income from superannuation amounts to $60,000.

This article continues with more examples and insight on the Sydney Morning Herald, The Age, Brisbane Times and WA Today here. It’s usually free to access the article - you may need to register.

How an entire generation cracked the game of life: working longer, but stressing less, with Demographer Bernard Salt

The Prime Timers are creating a whole new stage of life: The Lifestyle Years, a phase of life that brings a new balance to work and leisure time that previous generations simply couldn't enjoy.

It’s episode six of Prime Time, and this week I chat with Bernard Salt, world renowned demographer and social commentator about how our generation is doing pre-retirement and retirement differently. I have looked forward to recording this episode since the podcast began.

Bernard Salt probably knows more about the pre-retirement and 'lifestyle years' than anyone in the country. He's dedicated his career to studying this age group and how we are changing the way we live, work, buy, spend and sell. And it’s great to hear him talk about us so candidly - and how we’ll all probably be working longer, but doing less.

Listen now

LISTEN HERE - LATEST EDITION (S1E6) - OMNY

or listen on APPLE PODCASTS

or SPOTIFY PODCASTS

Black Friday Sale: inscribed copies of How to Have an Epic Retirement on sale

It’s been an absolute hoot inscribing copies of How to Have an Epic Retirement as gifts and popping them in the post to you. I’m enjoying popping a little note inside the front, and I hope you enjoy giving them to friends and family members. We’ve got a good deal on our own website for black friday. Click here to shop on my website.

Got your copy yet? Buy it at any bookstore

Don’t forget - you can buy How to Have an Epic Retirement wherever you get good books. Big W, Target, David Jones, Dymocks, QBD, major airports, and many many booksellers. If your smaller bookstore doesn’t have it in stock, ask them to get you one in. It won’t take them long.

How to Have an Epic Retirement is the ultimate guidebook for modern retirees. It is grounded in my own widespread research on modern retirement, and draws on my prior ten years as the CEO of Starts at 60 and Travel at 60 (before I stepped away to pursue my next career in retirement education). It also draws on the work of the leading thinkers in the longevity, health, happiness, purpose and modern ageing spaces and incorporates many interviews with people who have navigated the sometimes challenging path into retirement.