Important news for Australian seniors: the Age Pension rises on 20 September.
Payments are indexed twice a year, in March and September, using whichever measure of inflation or wages growth is highest.
Given the high inflation figures, this round will deliver the biggest lift in several years.
What the new Age Pension rate is worth
A single pensioner will receive $1,237.70 per fortnight from 20 September.
That is an increase of $36.80 a fortnight, which adds up to roughly $957 across a full year.
The new maximum annual payment for a single pensioner is about $32,180.
Each member of a couple will earn up to $933.00 per fortnight.
Combined, a couple will receive $1,866.00 a fortnight, an increase of $55.60 and about $48,516 across the year.
These are maximum rates and include the pension supplement and energy supplement.
So what is the catch?
Deeming rates also increase by half a percentage point on 20 September.
The lower rate moves from 1.25% to 1.75%, and the upper rate from 3.25% to 3.75%.
The thresholds stay put at $66,800 for a single person and $110,600 for a couple.
Deeming is the government’s assumption about what your financial investments earn, regardless of what they actually earn.
Full pensioners are unaffected by the change, but anyone holding substantial savings outside superannuation may find the pay rise considerably smaller than they were expecting as a result of these changes.
Where the assets test now stands
The assets test thresholds moved as well.
A single homeowner loses the pension at $745,750 in assessable assets.
For a homeowning couple, the cut-off is $1,121,000 combined.
The payment reduces by $3 a fortnight for every $1,000 of assets above the full pension threshold, which is $333,000 for a single homeowner.
How far the Age Pension actually goes
This is where the arithmetic gets interesting.
The Association of Superannuation Funds of Australia puts a comfortable retirement at $55,923 a year for a single person and $78,566 for a couple.
The full single Age Pension of roughly $32,180 leaves a gap of about $23,700.
As such, a couple on the maximum rate are around $30,000 short of the same benchmark.
Where ASX dividend shares fit in
Closing that gap over a retirement lasting twenty or thirty years usually means owning assets that produce a rising income.
The Vanguard Australian Shares High Yield ETF (ASX: VHY), for example, is one of the more popular ways Australians do it.
The fund holds around $7 billion, charges 0.25% a year, and screens the local market for higher-yielding companies.
The fund’s trailing distribution yield has been running well above the broader market’s.
However, the fund is heavily weighted toward banks and miners, so its income rises and falls with commodity prices and credit conditions.
Dividends are also assessable under both the income and assets tests, so extra income can reduce the pension itself.
Foolish takeaway
The 20 September increase is welcome and, for full pensioners, entirely uncomplicated.
For part pensioners with money in the bank, the higher deeming rates will offset some or all of it.
Anyone still working should treat the difference between the Age Pension and a comfortable retirement as the real number to target.
Roughly $23,700 a year is what the safety net does not cover for a single retiree.
Building an income stream from ASX dividend shares is one of the best ways to close it.
The post The Age Pension rises on 20 September. Here’s the new rate appeared first on The Motley Fool Australia.
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Motley Fool contributor Mark Verhoeven has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Vanguard Australian Shares High Yield ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.