Noel Whittaker runs the rule over ‘cash-strapped' retiree's income strategy

Could this 'cash-strapped' retiree be better placed? Personal finance expert Noel Whittaker assesses her financial health.

older woman at the chemist

The case study presented here describes a possible scenario that would be typical of many of today’s 'cash-strapped' retirees, that is those who rent and receive an Age Pension.

For these retirees, the main issues are the state of their health, inflation and changes to the superannuation and pension rules.

My responses are indicative of what may happen in the future and a guide to possible strategies. Retirees should closely examine their affairs at least once a year to ensure that any investment strategies are on track and their estate planning is up to date.

YourLifeChoices members should make themselves familiar with the calculators on my website, www.noelwhittaker.com.au They are simple to use and great for modelling possible outcomes.

For example, the Retirement Drawdown Calculator lets you model your retirement drawdowns and the Compound Interest Calculator allows the user to work out the growth of his or her assets.

The Stock Market Calculator allows users to enter a notional sum, invested on a starting date of their choice, and find out what they would have had on a given closing date if the investment they chose matches the All Ordinaries Accumulation Index that includes income and growth.

Many retirees are concerned about low rates on term deposits, but it’s important to understand that if the term is short, the rate does not have a big impact. 

•••

Case study 
Cash-Strapped Single (renter on an Age Pension)

Jenny

Age: 68

Retirement Affordability Index estimated expenditure: $23,145

Jenny’s estimated expenditure: $27,000

Mortgage: Nil

Superannuation: $80,000

Shares: Nil

Cash: $2000

Wages: $3500 pa

Age Pension: $24,258 pa

•••

Q. Jenny
With more than one third of my full Age Pension of $933 a fortnight going on rent, I have very little discretionary spending – and not much to back me up if something goes wrong. I am worried that I’m going to have to give up my private health insurance – it seems simply unaffordable now. Is there anything I can do to make the sums work? I do part-time babysitting and earn about $3500 per annum from this.

Noel says: This is an example of the challenges faced by single people who arrive at retirement without a house. And, sadly, their numbers appear to be growing. Jenny should make sure she takes advantage of every concession that governments at all levels offer, and also visit websites such as Simple Savings that give thousands of ideas on ways to save money. Even saving one dollar a day is worth close to $400 a year.

It’s great that Jenny has some money from employment – because employment does not just provide that extra income, which is so critical, but also contributes to health and wellbeing. A job provides a reason to get out of bed in the morning.

I also believe that people at every level should develop some kind of a buddy system – a person or persons with similar values and goals, with whom they can meet regularly, preferably weekly, to encourage each other and think about ways to improve their financial situation. It’s a great source of motivation, and will almost guarantee ongoing support when those inevitable situations arrive and Jenny feels down and out of her depth.

My initial thoughts were that Jenny should cash in her super. That way she could save ongoing fees and be free of the death tax that might be incurred by her beneficiaries when she dies. But that begs the question as to what she might do with the money. She would be lucky to get one per cent in a bank account, and the type of superannuation fund she is in should have been paying her between six and eight per cent per annum. The only way for her to get better returns would be to invest in a range of managed funds that are heavily invested in the share market.

But the problem here is that if she is inexperienced in do-it-yourself investing, she would need to get advice. The challenge is that the financial advice industry is so heavily regulated she would need a full financial analysis, which involves a long consultation and would cost at least $3000. That’s money she can’t afford.

On reflection, I think she is better off leaving her superannuation alone. She could relax and enjoy the monthly income, and the fact that her money is being professionally managed. She could still make withdrawals at call whenever she needs money.


Noel Whittaker
 is the author of Making Money Made Simple and numerous other books on personal finance.

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    Disclaimer: All content in the Retirement Affordability Index™ is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.





    COMMENTS

    To make a comment, please register or login
    Chris B T
    26th Feb 2020
    11:02am
    Why when specifically talking about Rent and Those who are Renting that you exclude the Rental Assistance Payment.
    Singles $123.20 per FN or $3203.2 PA to $138 per FN or $3588 PA.
    Add this to:
    Shares: Nil

    Cash: $2000

    Wages: $3500 pa

    Age Pension: $24,258 pa
    Doesn't Rental Assistance Count in this Scenario.
    {;-(0)
    Mariner
    26th Feb 2020
    11:13am
    2 days ago a single mate of ours purchased himself a manufactured home in a residential park for $35'000, weekly outgoings $180 for which he gets $45 a week rent allowance. He is doing well on the single pension, no car needed, the park is in town. Manages 2 yearly trips to Asian countries as well. Better than having that money in Super, me thinks.
    MITZY
    26th Feb 2020
    3:34pm
    If you are single, have no super, have a house with a reverse-mortgage on which I pay the interest each month even though I don't have to, but feel by doing so I give myself longer to live in my home until I reach the stage where the 25% value of that home I have consumed, expires (not wishing to stop paying interest and letting it accumulate until my death). This is another version of single age pension existence. Since my husband with MS for 26 years died I pay my cost of living, all my bills, rates, maintain my 2000 model Nissan Pulsar car, live in a country town where everything is dearer especially petrol and I can't exist on my single pension. I have no savings. We did have savings when I retired from working at 55 to care for my husband. Our savings were 50% in bank and 50% in stock market (not risky investments) and 50% were gobbled up by the GFC and stock market crashes and at that time although on carer/disability payments due to the savings we had we didn't receive "full" payments. After being reassessed we were eligible for full payments but then my husband passed away and I have existed for the past 8 years on the single age pension and nothing else. There are 2-3 months in the year when the bills/insurances and rates etc. combined with the general increased cost of living exceed the amount of the single age pension so I drawdown to pay those expenses a few times during the year from that mortgage.
    There are lots of people probably in similar situations to myself as there are lots of people paying rent on the single age pension too. I don't know what the answer is but with the cost of living so "high" I am continually looking at ways to economise. I am in good health because I eat well (fresh fruit/vegies/fish/eggs/steak once a week) and if I shopped in the other sections of the supermarket where all that processed and tinned preservative-laden food sits on the shelves it would be a lot cheaper to feed myself but my health would suffer. I am thankful I have my home as I can imagine those who don't own one would be continually wondering whether the landlord would be putting up the rent every time they got their rent assistance increase, or whether the landlord would be terminating their tenancy. This is not a very good life-style. Before the naysayers start surmising on my situation I should add I am 79 years of age; I have never in my whole life-time smoked or drank alcohol and never gambled on anything except the Melbourne Cup in a $2 sweep or a $1 each way bet on something I liked the name of in that race once a year. Sometimes this doesn't happen every year either. Keeping myself socially engaged I belong to Probus and the local Garden Club which have meetings once a month and visit members' gardens in between and car-pool or do day bus trips in Spring/Autumn when gardens are great to visit. Three times a week through MyAgedCare I go to an Aqua class and two gym classes. The gym classes are for strength & balance for seniors and also some cardio inbetween. These classes are run by "Uniting" and once a month we go for a social outing somewhere around the area we live in. We get picked up in the Uniting mini bus driven to the venue and have lunch and taken home. The costs for these outings is buy your own lunch. My Aqua/Gym classes are negligible. I have never been more engaged in the community since my husband passed away than I have all the earlier part of my life. Not thinking too much about the future just hoping that I can stay where I am for as long as possible. It would be nice if the government would take notice of the numerous agencies who keep saying over and over that New Start and the Single Age Pension (not only for renters) and no doubt the Couples Aged Pension who rent - all of which have no savings/investments were awarded a meaningful fortnightly increase other than the tiny increases under $10 we have received for considerable years now.
    marymacn
    26th Feb 2020
    4:14pm
    pls don't send me any more comments
    marymacn
    26th Feb 2020
    4:14pm
    pls don't send me any more comments
    Mariner
    26th Feb 2020
    6:12pm
    Do not intend to, do you want it in duplicate as well?


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