Age Pension

The Age Pension is a fortnightly payment from Services Australia for people who have reached Age Pension age - 67. You must also meet the residency rules: generally ten years in Australia, with at least five without a break. Eligibility and the amount are means-tested twice over - an income test and an assets test - and the test that produces the lower pension is the one that applies. Your main home is generally exempt from the assets test, which is why the family home sits at the centre of every retirement plan.

The maximum basic rate is $1,135.40 a fortnight for singles - roughly $29,520 a year. Couples receive $1,711.80 combined, roughly $44,507 a year, before supplements. The pension supplement and energy supplement can add to those figures, and the rates index every 20 March and 20 September. The pension is the safety net under your super, not a replacement for it: living on the full basic rate alone means budgeting on roughly $568 a week.

Walk both tests. The assets test counts financial assets, investment properties, cars, caravans and business assets - the main home is generally exempt - and above the threshold the pension tapers by roughly $3 a fortnight for every $1,000 of assets. The income test counts employment income, income streams, annuities and investments, with deemed rates applied to financial assets: a set assumed return regardless of what the account actually pays. Services Australia runs both tests, and the lower pension from the two is the one you receive.

The deeming arithmetic is where the tests quietly bite. Financial assets above the deeming threshold are assumed to earn roughly 0.25 percent on the first tranche and 2.25 percent above it - whether the account actually pays 4.5 percent or nothing. An account-based pension balance counts in both tests as well, which is why the drawdown rate interacts with the pension: a higher drawdown raises the income test count while reducing the assets test figure. The two tests pull in opposite directions, and the lower result is the one that applies.

The taper arithmetic is the second bite. Each $1,000 of assets above the threshold costs roughly $78 a year of pension - $100,000 of extra assets costs roughly $7,800 a year. Run your own position through the age pension calculator to see which test bites first.

For an Australian reader, the Age Pension is the floor under every retirement plan. The means tests are why the floor is not automatic. Roughly $29,500 a year for a single is the full basic rate - most retirees receive a part pension, and the part you receive depends on how your super, your assets and your drawdown rate interact with both tests. MoneySmart's guidance points at the interaction directly: your home is generally exempt from the assets test, your account-based pension counts in both, and the deeming rates apply whether your accounts actually earn them.

A colleague named Brent (yes, that Brent) spent his super down hard before 67 because the pension would cover the rest. Then he discovered what the full basic rate actually buys: roughly $568 a week, with the taper meaning every dollar of assets he kept would have paid for itself in pension. The highest-leverage thing most Australians can do is model the means tests before the drawdown strategy. Run them through the age pension calculator and the retirement income calculator - the interaction is where the pension is won or lost.