If your anticipated retirement income falls short of your anticipated retirement outgoings, you have a pension gap. A pension gap indicates that you will not have enough money when you are retired to facilitate the kind of lifestyle you aim to enjoy as a pensioner. Essentially there are only two main ways to close a pension gap: save significantly more now for your future or retire later and save more gradually. The right route for you will depend on the size of your pension gap. If you fall short of your desired income by a small amount, perhaps a thousand dollars a year, there may be short-term changes you can make today to increase your savings, or retirement outgoings that you would be willing to forgo instead. If you fall short by several thousand dollars a year, you will need to look more carefully at the ways in which you could make up the shortcoming.
Are you currently on track to get the Age Pension? Look at your Age Pension forecast; currently the age pension is around $795 a fortnight if you are single and $1198 a fortnight as a couple with a pension supplement of $65/single and $98/couple respectively, and a further energy supplement of $14.20/single and $21.20/couple. If you are not sure if you are eligible for the Age Pension or have been denied, investigate why this is. You might be able to fill gaps that appear in your pension by seeking assistance from Centrelink in regard to other payments that may be available for older Australians. In this way you can increase the Age Pension you will be entitled to when you retire. For more details see The Age Pension.
Are there any occupational pension schemes that you have not yet joined? These schemes are often a good investment for the future, offering you a savings account, extra contributions from your employer and tax advantages whilst you are setting money aside. Many pension schemes offer tax relief on contributions and an extra tax-free lump sum when you begin drawing your pension. You might be able to take out another form of personal pension, and pay into two or more separate schemes which would pay you an annual pension in later life. It might also be possible for you to make larger or more frequent pension contributions than you are currently making, to ensure a higher pension when you come to draw it. For more information on private pensions see Personal Pensions, Stakeholder Pensions, Occupational Pensions and Increasing your Pension.
If you are already paying into a super fund and are looking for different saving opportunities, consider investing. Individual Savings Accounts, Term Deposits, Bonds are now offered by most banks and building societies, as well as by other institutions. There is also property and the share market to consider depending upon your financial position and capacity. You might want to consider investing in a separate fund which invests some or all of your contribution in the stock market. These funds can involve more risk, but they also offer you the chance to make returns on your investment that exceed the gains you would find elsewhere, for example, if you left your money to gather interest in a straightforward savings account. As you approach retirement you can transfer investments in riskier schemes to safer accounts for added peace of mind. Another great investment for the future is your own home: whilst no one can predict the future property market you may be entitled to sell your home tax free. This means that you are allowed to keep all the money you receive for the sale of your house, except for estate agent fees. You could also buy a property and rent it out to others, or consider renting out one or more rooms in your existing home to a lodger to create another source of retirement income. If you sell your home, or even your own business, you could invest the profits for maximum returns. See Other Investment Opportunities for more details.
If you do not feel able to pay more money into a super fund or other investment vehicles, you should try to analyse how you can make changes to your current spending patterns in order to save more money for your retirement. Do you have a gym membership for a gym you rarely use; a contracted mobile phone when you make only a few calls a month; a subscription to pay-tv which you hardly have the time to watch; a tendency to order take-away on a regular basis or a smoking habit you have been intending to quit for years? It might be time to reassess how necessary your regular expenditures are: even small reductions in your outgoings can make a big difference to your bank balance in the long run!
Imagine the savings you could make if you were to cut your expenditures in the following ways:
Quit smoking two $16 packets of twenty cigarettes a week
= $832 a year, or $8320 over ten years
Resist one $10 take-away a week
= $520 a year, or $5200 over ten years
Cancel your $50 a month gym membership
= $600 a year, or $6000 over ten years
Cancel your $40 a month pay-tv subscription
= $480 a year, or $4800 over ten years
Reduce your $30 a month mobile contract to $15 a month pay-as-you-go
= $180 a year, or $1800 over ten years
Over ten years you could save a total of $26,120 for your future.
If you are currently unemployed, consider visiting your local Centrelink Office and asking them for advice on finding a job and returning to the work arena. You might find it easier to start with a part-time job at first, or if you are currently working part-time you could ask your employer about the possibility of working full-time in the future. Having a job is essentially the only way to build up your superannuation contributions and against relying on an Age Pension. If you are currently employed, consider working longer and retiring later. This is rarely the most appealing option, but with new government laws being introduced to prohibit age discrimination in the workplace working past sixty-five will soon be an established practice. Working longer offers you the obvious benefit of more salaried years to save for the future and fewer years in retirement for which to save up. There are other benefits to delaying your retirement too however: if you defer drawing your Superannuation for one year or more you can draw an improved pension on retirement or take a one-off lump sum instead. You could also consider working part-time in a new or existing job when you are retired and increase your retirement income in this way. See Early/Late Retirement and the State Pension and Early/Late Retirement and Non-State Pensions for more details.
If you have to take early retirement or cannot envisage returning to the workplace due to a long-term illness or disability you will have to investigate what alternatives are available to you. Read the small print of your superannuation fund contract and see what procedures they have in place for contributors with special circumstances. If your super fund does not appear to offer any alternatives or compensation, consult your representative to determine your best course of action. If you consider that your scheme has renegaded on its promises, is acting unfairly or illegally, you could contact the Superannuation Tribunal for assistance, or if your employer has failed to make super payments towards your superannuation entitlements contact the Australian Taxation Office. Meanwhile you may be entitled to claim incapacity benefits from the government to help cover your outgoings. For more information see People with disability, Choosing between Carer Payment and Age Pension and Payments for Older Australians.
If you have difficulties determining what you should do for the best, consider employing an independent financial advisor. Financial advisors can analyse your individual financial situation and offer constructive, independent advice on your Age Pension, your superannuation and your best savings and investment options. If you are not comfortable employing someone to help you, visit a bank and request an appointment with one of their advisors. They will usually be able to advise you on your individual situation, and do so for free, but bear in mind that they will be hoping to sell their own products: do your research before signing on the dotted line and ensure you get the best deal to suit your needs.
Bear in mind that pensioners with the highest retirement income do not rely on the Age Pension alone, but combine their government benefits with private earnings from investments and continued earning from jobs. The best retirement income profile is a varied one which does not invest all its eggs in one basket. However, above all be sure to act in some way to secure your future comfort and happiness: finding the right schemes and investments might seem convoluted and discouraging at first, but it will prove time well spent when you are spared a lot of worries in retirement.
