Loading component...
Loading component...
Loading component...
Loading component...
Loading component...
Download the full article below.
For some clients, retiring before age 67 is not a lifestyle choice. It may be driven by redundancy, health issues, caring responsibilities or the physical demands of work. In these situations, advisers often need to solve for two horizons at once: the immediate cashflow gap before Age Pension age and the longer-term need for sustainable retirement income.
Where eligible, pre-Age Pension social security payments such as Disability Support Pension, Carer Payment or JobSeeker Payment may help reduce the pressure on personal savings. But eligibility, means testing and the treatment of different retirement income structures can materially change the advice outcome.
For advisers, the opportunity is to help clients balance near-term income needs with flexibility, social security outcomes and the sustainability of retirement capital. This article explores those issues through a case study of clients considering retirement before Age Pension age.
Unless stated otherwise, the rates and thresholds used in this article apply as at 20 March 2026.
Vaibhav Surya is 60 and has spent most of his working life in construction and tradebased roles. The physical demands of his work are becoming increasingly difficult, and he is considering whether he can afford to retire before reaching Age Pension age. At this stage, he is unsure whether he would qualify for Disability Support Pension or JobSeeker Payment if he stops working.
His wife, Smriti Surya, is also 60. She does not have the same physical concerns, but she is mentally exhausted from working in a difficult workplace and is considering finishing work at the same time as her husband. At this stage, she does not think she will be eligible for Carer Payment or Carer Allowance and is unsure whether she will be eligible for JobSeeker Payment.
Together, they need to understand how their superannuation, savings and any potential social security payments could support them through retirement, and more specifically during the next seven years while they are under Age Pension age.
The Suryas have the following assets:
The Suryas want to enjoy retirement as much as possible and do not have specific plans to leave a bequest to their children. They estimate their essential living expenses at around $52,000 per year, but their preferred retirement lifestyle would require closer to $80,000 per year for as long as their capital allows.
Their desired and essential spending creates four key advice questions:
What happens when they reach Age Pension age in seven years’ time?
Using Challenger’s Retirement Illustrator, we can see that, without any social security payments for the first seven years of retirement, and using account-based pensions with fixed return modelling, their retirement capital is projected to be exhausted in 17 years, when they are around age 77. To further highlight the precariousness of their position, sequencing risk also presents a real concern. If poor investment returns occur early in retirement while they are drawing higher levels of income, their savings may not last as long as projected.
The Suryas understand there is a real possibility they may outlive their capital. They therefore want to know whether they may be eligible for any social security payments before qualifying for the Age Pension in seven years’ time. If available, these payments may reduce the drawdown pressure on their retirement savings and help their capital last longer.
The common social security payments in their situation are:
While Vaibhav has health concerns, he thinks it is unlikely that he will qualify for Disability Support Pension, given its stringent medical assessment and noting an almost 40% rejection rate.
Similarly, Smriti thinks that while Vaibhav needs some care, she is unlikely to be providing ‘constant care’ and is therefore unlikely to qualify for Carer Payment.
Instead, they want to consider JobSeeker Payment. Their financial adviser explains that, from age 60, they may be able to fully meet their mutual obligation requirements by undertaking approved voluntary work of 30 hours per fortnight, which they are comfortable doing.
JobSeeker Payment could provide close to $38,500 p.a. towards their desired $80,000 p.a. spending, subject to eligibility and means testing. This would place significantly less pressure on their own retirement savings.
JobSeeker Payment has both an assets test and an income test. Failing either test results in ineligibility for JobSeeker Payment.
Under the assets test, partnered homeowners must have assessable assets below $481,500. If their assessable assets exceed the threshold, they are ineligible for JobSeeker Payment. Under the income test, each member of a couple can generally have income of $150 per fortnight before their payment starts to reduce under the personal income test.
Superannuation in accumulation phase held by a client who has not yet reached Age Pension age is generally not assessed under the assets test or income test. Lump sum withdrawals from superannuation are also generally not treated as income.
By contrast, account-based pension balances, including Transition to Retirement Income Streams, are assessed under the assets test. Under the income test, where the account-based pension commenced on or after 1 January 2015, the account balance is subject to deeming.
Given the JobSeeker Payment assets test limit of $481,500 for homeowner couples, care is needed before commencing income streams from accumulation balances. Advisers need to ensure that assessable assets remain within the allowable threshold.
One drawback is that earnings on accumulation-phase balances are taxed within the superannuation fund environment at up to 15%.
The social security treatment of a lifetime annuity commenced from 1 July 2019 is generally the same regardless of whether the client is under or over Age Pension age. The same treatment can also apply to pre-Age Pension social security payments, including JobSeeker Payment, provided the annuity satisfies the relevant lifetime income stream rules.
Under the assets test, Challenger’s Lifetime Annuity (Liquid Lifetime) is assessed at 60% of the purchase price until the later of age 85 or five years from commencement, and at 30% thereafter. Under the income test, 60% of the regular payments are assessed.
The Suryas have a number of options for receiving income from their superannuation, including:
The Suryas were considering holding three years of desired spending, or $240,000, in cash and investing the rest of their funds in line with their risk profile and asset allocation, similar to a bucket strategy.
Alternatively, the Suryas’ adviser considered substituting part of the cash bucket with lifetime annuities. The adviser modelled allocating 30% of their combined superannuation balances ($225,000) to Challenger Lifetime Annuities, indexed to CPI and reversionary to each other. This would provide guaranteed regular income starting at $10,941 p.a., indexed to CPI, for the rest of their lives. Importantly, if their other investments were depleted later in retirement, the combination of Age Pension and annuity income could provide guaranteed income of around $58,000 p.a. for life. This would cover their estimated essential spending need of $52,000 p.a., with an additional buffer of around $6,000 p.a.
Earlier, we noted that homeowner couples need assessable assets below $481,500 to qualify for JobSeeker Payment. If the Suryas commence lifetime annuities with a combined purchase price of $225,000, the assessable asset value would be $135,000 ($225,000 x 60%). To supplement their income, Smriti also commences a 1-year, nil RCV, monthly payments, fixed term annuity with $27,984 which provides the Suryas’ with $28,745 throughout the year. The rationale around commencing a 1-year fixed term annuity rather than a longer term is to ensure that social security assessable income from the annuity is kept to a minimum and is reviewed each year.
Together with $25,000 in personal effects and motor vehicles and $50,000 remaining in the bank, their assessable assets would be well below the allowable threshold.
The income test would slightly reduce their JobSeeker Payment. In Year 1, the lifetime annuities provide combined income of $10,941 p.a. Because JobSeeker Payment applies the income test separately to each member of a couple where both are receiving an allowance, Smriti receives the maximum rate and Vaibhav receives almost the full rate, with a reduction of about $7 per fortnight.
When the Suryas reach Age Pension age, they will no longer need to rely on JobSeeker Payment and may instead qualify for the Age Pension. At that point, the social security sheltering benefit of accumulation-phase superannuation has effectively reached the end of its useful life, as their remaining superannuation will become assessable whether it remains in accumulation phase or is converted to retirement phase.
They could then consider converting any remaining superannuation to retirement income stream products, such as a combination of account-based pensions, fixed term annuities or an additional allocation to lifetime annuities. The objective would be to continue supporting their desired spending of $80,000 p.a. for as long as possible, while retaining the peace of mind that their estimated essential spending need of $52,000 p.a. is covered for life.
This article has focused on a very specific case study involving clients who are under Age Pension age and may be relying on JobSeeker Payment to help meet their income needs.
However, the broader advice considerations are not limited to JobSeeker Payment. Some clients retiring before Age Pension age may be receiving, or may be eligible for, Disability Support Pension, Carer Payment or another means-tested social security payment. Others may not qualify for any social security payment, whether because they do not meet the relevant non-financial eligibility rules or because their assessable income or assets exceed the applicable thresholds. For this cohort, the advice discussion becomes even more important, as their cashflow requirements may need to be met entirely from superannuation, personal savings and other investments. While each client’s position will depend on their circumstances, advisers may still need to work through similar issues around desired and essential spending, means testing, access to capital and the role of retirement income products in providing income for life.
Please contact your Challenger BDM if you would like to discuss how Challenger income solutions may assist in providing retirement income for your clients.