Is the Age Pension enough to retire comfortably in Australia?

What type of retirement lifestyle do you aspire to have?

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Age Pension is a sum paid to Australians aged 67 years or older to help fund their retirement.

While the Age Pension is a fantastic tool to help older individuals, it might not necessarily be enough to find the retirement lifestyle that you want.

Here's a breakdown of everything you need to know.

A woman sits in her home with chin resting on her hand and looking at her laptop computer with some reflection with an assortment of books and documents on her table.

Image source: Getty Images

How much is the Age Pension payment?

The maximum fortnightly Age Pension payment is $1,100.30 for single Australians or older. Couples can get up to $829.40 per person per fortnight. 

The rates don't include any additional potential supplement rates.

The amount you'll receive can also vary depending on where you fall under the Age Pension assets and income tests. It is possible to earn a part-payment if your income and/or assets are over the threshold, and the amount is generally calculated on a sliding scale.

How much will a comfortable retirement cost me?

According to Association of Superannuation Funds of Australia (ASFA) defines a comfortable retirement as one which allows Australians to maintain a good standard of living. It assumes you'll keep top-level private health insurance, will own a reasonable car brand, do regular leisure activities, have funds for home repairs and renovations, go for an occasional meal out, and maybe even an annual domestic trip (or an occasional overseas one).

According to ASFA data, a comfortable retirement lifestyle will cost individual Australians around $54,840 a year. For couples, this can be closer to $77,375 a year. That translates to around $2,100 and $3,000 per fortnight, respectively.

You'll note this is significantly higher than the Age Pension payment, meaning that Australians can't rely on the Age Pension alone if they want to retire comfortably.

What about a modest retirement?

A modest retirement assumes you'll hold basic health insurance, a cheap car model (or none at all), a limited home repair budget, minimal utility expenses, limiting dining out, and infrequent travel, and it'll cost a lot less. 

In order to live a modest retirement lifestyle, individual Australians can expect to need $35,503 per year, or for a couple this would be closer to $51,299 per year. That translates to around $1,360 and $2,000 per fortnight respectively. 

Again, calculations show the Age Pension alone isn't enough to fund what ASFA classifies as a modest retirement.

The verdict – your superannuation will need to bridge the gap

To fund a comfortable retirement, ASFA has calculated that single Australians will need a superannuation balance of around $630,000, or couples would need $730,000. 

These sums still also assume you'll earn a part Age Pension. It's not possible to rely solely on the Age Pension if you want to retire comfortably. 

Motley Fool contributor Samantha Menzies has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Retirement

Strong woman overlooking city.
Retirement

3 strong ASX 200 shares for retirees to buy and hold

For retirees, I would focus on income that is backed by resilient businesses, not just the highest dividend yield.

Read more »

A mature-aged couple high-five each other as they celebrate a financial win and early retirement.
Retirement

Why this ASX dividend share is a retiree's dream

This business could be a great passive income choice.

Read more »

Woman in a hammock relaxing, symbolising passive income.
Retirement

136,191 shares of this high-yield ASX dividend stock pays an income equal to the Age Pension

This stock looks more appealing than the Age Pension.

Read more »

Man holding out $50 and $100 notes in his hands, symbolising ex dividend.
Superannuation

3 superannuation decisions you'll regret in retirement

Making these wrong decisions could cost you a fortune.

Read more »

A couple hang off their car looking at the sun rising over the horizon.
Retirement

Fast-track your retirement with these ASX shares and ETFs

Infrastructure, blue chips, and ETFs could strengthen long-term retirement portfolios.

Read more »

A couple sit on the deck of a yacht with a beautiful mountain and lake backdrop enjoying the fruits of their long-term ASX shares and dividend income.
Dividend Investing

Build the ultimate retirement portfolio with these 2 monthly ASX dividend stocks

Monthly dividend stocks are perfect for a retirement portfolio...

Read more »

Woman holding $50 notes with a delighted face.
Retirement

9,269 shares of this high-yield ASX dividend stock pays an income equal to the Age Pension

This stock looks more appealing than the Age Pension.

Read more »

Teen standing in a city street smiling and throwing sparkling gold glitter into the air.
Retirement

Forget gold! Start hunting fallen ASX 200 shares to buy for an earlier retirement

Gold can protect wealth, but quality businesses can grow it. That is why I would be looking closely at fallen…

Read more »