Should I keep working after retirement age?

Should I keep working after retirement age?

While the dream is to hit retirement age, lie back, put your feet up and forget about work for the rest of your life, this isn't the case for everyone. We've talked before about the potential necessity for Australians to work beyond their retirement, due to numerous factors:

  • inflation
  • rising cost of living
  • sudden, large health care expenses
  • if your superannuation funds aren't sufficiently built up

Even if they don't necessarily need to, however, many Australians continue to work past the age they can stop working. According to the Australian Bureau of Statistics (ABS), the number of Australians aged 55 and over participating in the workforce has shot up by nine percent over the three decades to 2010. Much of this increase has taken place in the final 10 years of this period. Even those aged 70 or over saw a workforce participation rate of between 2.7 percent and 4.5 percent during this period. 

So it seems that Australians are increasingly deciding to keep working as they get older. The question is, should they?

The psychological aspect

Even apart from financial need, it seems many Australians elect to keep working past retirement in order to give themselves something to do. After all, the daily nine-to-five work grind also brings with it a sense of purpose and direction that, when lost, can be difficult to replace. 

A study carried out by CoreData on behalf of State Super Financial Services earlier this year demonstrated this very fact, as reported by news.com.au and The Mandarin. Surveying the views of 2496 public servants, it was found that only 20 percent wanted to stop working completely upon reaching retirement age, with more than two-fifths looking to take up full-time or part-time employment, or even start volunteering. 

Similarly, ABS data from 2009 shows that, while financial need is the most common reason for individuals to come out of retirement, 32 percent and 14 percent of women also cited boredom and lack of anything to do as a reason. 

Working after retirement can therefore serve two purposes. Not only will it fill your coffers further and boost your existing retirement savings, but it can also keep you active — mentally, physically and socially — plus make you happier, if the line of work you're in is something you enjoy.

What to know

If you're one of these individuals, you'll want to get yourself up to speed with all of the legal technicalities around working past retirement. 

It's possible to access your super while continuing to work once you reach your preservation age or turn 65. Depending on your particular superannuation rules, you may need to leave a particular amount in the account, or even invest it in a superannuation income stream product, such as an account-based pension. 

You might also want to keep in mind that there are a number of government incentives for those who work past retirement age and choose to stay in the work force. The Department of Human Services outlines the Work Bonus scheme, which increases the amount of money you can earn before your pension is lessened for those past the legal age, and the Pension Bonus Scheme. To be eligible for the Pension Bonus Scheme you must have registered before July 1, 2014. The latter gives a lump sum for those who don't immediately claim their pension, but unlike the Work Bonus scheme, you must register for it. 

All of this should help you make the decision of whether or not to work after you reach retirement age. 

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Learn more about superannuation

How does the age pension work?

Most Australians who are of retirement age can qualify for the age pension. However, depending on the size of your assets and post-retirement income, you might be entitled to only a reduced pension. In some instances, you might not be entitled to any pension payments.

What are the age pension's residence rules?

On the day you claim the age pension, you must be in Australia and you must have been an Australian resident for at least 10 years (with no break in your stay for at least five of those years). The following exceptions apply:

  • You’re exempt from the 10-year rule if you’re a refugee or former refugee
  • You’re exempt from the 10-year rule if you’re getting Partner Allowance, Widow Allowance or Widow B pension
  • You can claim the age pension with only two years of residency if you’re a woman whose partner died while you were both Australian residents
  • You might be able to claim the age pension if you’ve lived or worked in a country that has a social security agreement with Australia

What are the age pension's age rules?

Australians must be aged at least 65 years and 6 months to access the age pension. This eligibility age is scheduled to increase according to the following schedule:

Date Eligibility age
1 July 2019 66 years
1 July 2021 66 years and 6 months
1 July 2023 67 years

How does superannuation affect the age pension?

Most Australians who are of retirement age can qualify for the age pension. However, depending on the size of your assets and post-retirement income, you might be entitled to only a reduced pension. In some instances, you might not be entitled to any pension payments.

What is the age pension's income test?

These are the rules for most people who want to claim the standard pension:

Single people

  • If your income per fortnight is up to $168, you’re entitled to a full pension
  • If your income per fortnight is over $168, your pension will reduce by 50 cents for each dollar over $168

Couples

  • If your income per fortnight is up to $300, you’re entitled to a full pension
  • If your income per fortnight is over $300, your pension will reduce by 50 cents for each dollar over $300

These are the rules for most people who want to claim the transitional pension:

Single people

  • If your income per fortnight is up to $168, you’re entitled to a full pension
  • If your income per fortnight is over $168, your pension will reduce by 40 cents for each dollar over $168

Couples

  • If your income per fortnight is up to $300, you’re entitled to a full pension
  • If your income per fortnight is over $300, your pension will reduce by 40 cents for each dollar over $300

For most people, the age pension cuts off if your fortnightly income exceeds these thresholds:

Category Fortnightly income
Standard pension for singles $1,944.60
Standard pension for couples living together $2,978.40
Standard pension for couples living apart due to ill health $3,853.20
Transitional pension for singles $2,038.00
Transitional pension for couples living together $3,317.00
Transitional pension for couples living apart due to ill health $4,040.00

What are my superannuation obligations if I'm an employer?

Employers are required to pay superannuation to all their staff if the staff are:

  • Over 18 and earn more than $450 before tax in a calendar month
  • Under 18, work more than 30 hours per week and earn more than $450 before tax in a calendar month

This applies even if the staff are casual employees, part-time employees, contractors (provided the contract is mainly for their labour) or temporary residents.

How do you find superannuation?

Lost superannuation refers to savings in an account that you’ve forgotten about. This can happen if you’ve opened several different accounts over the years while moving from job to job.

You can use your MyGov account to see details of all your superannuation accounts, including any you might have forgotten. Alternatively, you can fill in a ‘Searching for lost super’ form and send it to the Australian Taxation Office, which will then search on your behalf.

How can I withdraw my superannuation?

There are three different ways you can withdraw your superannuation:

  • Lump sum
  • Account-based pension
  • Part lump sum and part account-based pension

Two rules apply if you choose to receive an account-based pension (also known as an income stream):

  • You must receive payments at least once per year
  • You must withdraw a minimum amount per year
    • Age 55-64 = 4%
    • Age 65-74 = 5%
    • Age 75-79 = 6%
    • Age 80-84 = 7%
    • Age 85-89 = 9%
    • Age 90-94 = 11%
    • Age 95+ = 14%

If you want to work out how long your account-based pension might last, click here to access ASIC’s account-based pension calculator.

What is superannuation?

Superannuation is money set aside for your retirement. This money is automatically paid into your superannuation fund by your employer.

What are reportable employer superannuation contributions?

Reportable employer superannuation contributions are special contributions that an employer makes on top of the regular compulsory contributions. One example would be contributions made as part of a salary sacrifice arrangement.

Can I choose a superannuation fund or does my employer choose one for me?

Most people can choose their own superannuation fund. However, you might not have this option if you are a member of certain defined benefit funds or covered by certain industrial agreements. If you don’t choose a superannuation fund, your employer will choose one for you.

What are the risks and challenges of an SMSF?

  • SMSFs have high set-up and running costs
  • They come with complicated compliance obligations
  • It takes a lot of time to research investment options
  • It can be difficult to make such big financial decisions

How much superannuation should I have at age 40?

The amount of superannuation you should have at age 40 is based on how much money you need to have at retirement. That, in turn, is based on how much money you expect to spend each week during your retirement. That, in turn, depends on whether you expect to lead a modest retirement or a comfortable retirement.

The Association of Superannuation Funds of Australia (ASFA) estimates you would need the following amount per week:

Lifestyle Singles Couples
Modest $465 $668
Comfortable $837 $1,150

Here is the superannuation balance you would need to fund that level of spending:

Lifestyle Singles Couples
Modest $50,000 $35,000
Comfortable $545,000 $640,000

These figures come from the March 2017 edition of the ASFA Retirement Standard.

The reason people on modest lifestyles need so much less money is because they qualify for a far bigger age pension.

Here is how ASFA defines retirement lifestyles:

Category Comfortable Modest Age pension
Holidays One annual holiday in Australia One or two short breaks in Australia near where you live Shorter breaks or day trips in your own city
Eating out Regularly eat out at restaurants. Good range and quality of food Infrequently eat out at restaurants. Cheaper and less food Only club special meals or inexpensive takeaway
Car Owning a reasonable car Owning an older, less reliable car No car – or, if you do, a struggle to afford the upkeep
Alcohol Bottled wine Casked wine Homebrew beer or no alcohol
Clothing Good clothes Reasonable clothes Basic clothes
Hair Regular haircuts at a good hairdresser Regular haircuts at a basic salon Less frequent haircuts or getting a friend to do it
Leisure A range of regular leisure activities One paid leisure activity, infrequently Free or low-cost leisure activities
Electronics A range of electronic equipment Not much scope to run an air conditioner Less heating in winter
Maintenance Replace kitchen and bathroom over 20 years No budget for home improvements. Can do repairs, but can’t replace kitchen or bathroom No budget to fix home problems like a leaky roof
Insurance Private health insurance Private health insurance No private health insurance

 

 

Am I entitled to superannuation if I'm a part-time employee?

As a part-time employee, you’re entitled to superannuation if:

  • You’re over 18 and earn more than $450 before tax in a calendar month
  • You’re under 18, you work more than 30 hours per week and you earn more than $450 before tax in a calendar month