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Many of us think about retirement as a time to enjoy the fruits of our labour, explore new interests and choose a more relaxing pace of life. But extended lifespans, changing eligibility criteria and the growing cost of living mean a lot of people end up considering different retirement income ideas after leaving full-time work.
In fact, the number of Australians aged 65 and over in the workforce more than doubled between 2001 and 2021, according analysis by the Australian Institute of Health and Welfare. The most recent data showed 15% of people in this age group had some form of employment.
Financial need, boredom, interesting opportunities and being asked back to work by a former employer were the four biggest reasons people return to work, according to data from the Australian Bureau of Statistics (ABS).
So if you’re thinking about retirement income now, here’s what you need to know.
What is the best source of income in retirement?
Most Australians rely on the pension when they retire, with ABS data showing it is the main source of income for 43.3% of retirees. In comparison, 25.8% of people have superannuation, an annuity or private pension as their main source of income.
There are also other sources of income in retirement, including rental property income, other investments and paid employment. So there isn’t really one ‘best’ source of income – in depends on factors including your financial situation, personal situation and goals.
“You need to discuss and define the term ‘best’,” Lachlan Anderson, Partner & Financial Adviser at Discover tells The Australian Women’s Weekly. “Do you mean the most reliable, the longest-lasting, the most tax effective, or the [income with the] best return?”
But he says that there are some sources of income that are better than others.
“Focusing on income from investments, certainly, drawing down from a superannuation fund would be the closest option to being considered the best,” he says.
Drawing regular income from super, when converted into an account-based pension, provides tax-free income when you’re over 60 and can be designed in a way that lasts as long as you need it to.
Lachlan Anderson, Partner & Financial Adviser at Discover
“You can choose to have this paid to you on a regular basis, such as fortnightly or monthly, with the flexibility of adjusting your payments along the way,” he says.
“Another form of a superannuation income stream is an annuity, which is less flexible but still ticks the boxes for reliable and tax-free income.”
Unlike traditional superannuation, an annuity is a fixed form of income that is not tied to the share market. You can buy an annuity with your savings or superannuation and will get a guaranteed income for a fixed term.
What about other sources of retirement income?
Dividends or interest, rental property income and income from an individual, unincorporated business are other sources of income the ABS tracks. Collectively, they make up the main source of income for around 6.7% of Australian retirees.
Basically, these sources of income can work well for some people, but won’t suit everyone.
“Some retirees, who have accumulated properties will be living off rental income, which can be a reliable source of income, one that can also be adjusted for inflation,” Lachlan tells The Australian Women’s Weekly.
“However, rental income is taxable, and many investors will understand that rental income is not always reliable, with tenants moving out and property expenses coming up from time to time.”
Dividends are another form of income you can get if you invest in the stock market.
“Dividends, paid from publicly listed shares, like the CBA for example, can also be a good source of income, as often this will be received tax-free for a retiree because the companies themselves have paid tax,” Lachlan says.
“However, this may not be as reliable, given that the company paying the dividends can decide after each reporting period how much they are going to pay.”
Dividend payments are also typically made once or twice a year, which could make it hard to manage your finances if you’re relying on dividends as a main source of income. Interest, on the other hand, could come from your savings or other investments (i.e. bonds).
But if you want to generate income from something other than an investment, a part-time or casual job – otherwise known as a side hustle – is also worth considering.
“The best non-investment, or, earned income has to be from a source that you’re passionate about and brings you enjoyment,” Lachlan says.
What is a good side hustle for a retiree?
A good side hustle for anyone is something that you can enjoy doing while earning money from it.
“Perhaps it’s a continuation of the skills you have accumulated over your career, or it’s in an area that you are personally passionate about,” Lachlan says.
If you’re looking for inspiration, here some side hustles you can consider when you’ve retired:
- Tutoring
- Consulting, especially if you have industry contacts and expertise from your previous career
- Freelance writing or photography (websites like Upwork, Fiverr and Pixpa can be a place for this)
- Pet sitting and dog walking (websites like MadPaws and Pawshake can help with this)
- House-sitting
- Gardening and home maintenance (i.e. ‘handyman jobs’)
- Selling plants, flowers or craft items you make (i.e. pottery, knitware)
- Cleaning
- Bookkeeping
- Driving and/or deliveries (think Uber and MenuLog)
- Second-hand sales and/or flipping items
For more financial stability, a job with flexible hours is another way to earn money in retirement.
“If a retiree needs some additional income, casual work can often be a flexible income source,” financial planner Alex Jamieson tells The Australian Women’s Weekly.
“Part-time and casual jobs are ideal as they allow retirees to supplement their income in a manner which suits their lifestyle.”
What are some common challenges to generating income in retirement?
Retirement is different for everyone, but being aware of some common challenges can help you avoid or at least reduce their impact. Here are three to keep in mind.
1. Not having enough money when you retire
According to Alex, “The biggest challenge for retirees is entering retirement underfunded”. This basically means not having enough superannuation or other assets to pay for your day-to-day expenses and other costs.
“This can place tremendous financial strain on one’s income position throughout the retirement period and places the retirement asset base at risk of depleting well before one’s life expectancy.”
Earning income from a side hustle or part-time job when you’re retired is one way to supplement existing retirement funds. Another option is to postpone retirement.
“Working for a longer period of time prior to commencing retirement might save tremendous hardship throughout retirement,” Alex says.
2. Lack of confidence in starting something new
When it comes to earning more income in retirement, Lachlan says he’s found many people are challenged by not having the confidence to start.
“Often, the solution to this challenge is simply to just do exactly that: start,” he says.
“If you want to start a side hustle, doing pet-sitting for instance, then just give it a go one time. Maybe you have a friend who’s going on holiday, you can ask them if they would like to leave their pet with you and negotiate a reasonable fee. Then if you enjoy that experience you can let your neighbours know you are available for the same thing, or you can perhaps post about it on your local area Facebook page. Who knows how big it could grow, but you’ll certainly never find out if you don’t make a start.”
3. Uncertainty about income requirements
A lot changes when you retire, including tax requirements and income-reporting responsibilities related to the pension.
“I have heard that people are scared off by not knowing the rules around earning an income and receiving the age pension, or having to pay tax; again my first suggestion is to just start, and then if you end up making some money, you can figure out the flow on impact on these subjects,” Lachlan says.
“I can confirm that retirees are absolutely entitled to earn some income from work and still receive the age pension, and depending on the rest of your financial position, you may not have to pay any tax either – importantly, every situation is different and to get an official answer to these questions you should speak to a financial adviser.”
In fact, the Australian government has a number of incentives for retirees to earn income, including the Work Bonus and Pension Income Test, which outline clear details of how much you can earn before payments are affected.
“If you have questions on setting up business structures and more complex issues, that can be discussed with an accountant or financial adviser too, however, if the idea is just to generate a little bit of extra cash, not create a global conglomerate, then the structuring and managing cash flow of a side hustle should not be complex.”
