Working beyond retirement is meant to help older Australians remain financially stable, but for some, it leads to steep tax rates. Marginal rates can reach up to 77%, according to new research. Older Australians trying to supplement their pension or pay off mortgages often face both income tax and pension reductions.
A recent analysis backed by a major super fund and conducted by a fintech group focused on retirees found that single pensioners earning between $20,000 and $70,000 may face effective tax rates above 50%. In the worst cases, rates exceed 70%, making it less appealing to continue working later in life. The issue has become more severe as more Australians enter retirement with mortgages and personal debt, a sharp increase over the past two decades.
There are two main reasons more people are working beyond the official retirement age. The first is choice, with more men and women choosing to stay employed as pension age thresholds increase. The second is financial necessity. Rising debt and uncertain home ownership mean many retirees cannot afford to stop working. However, the system offers little benefit for staying employed. Instead, workers face higher taxes and reduced access to pension support.
In theory, working longer should help bridge the income gap between government pension payments and the amount considered necessary for a comfortable retirement. Industry estimates put this at $53,000 a year for singles and $75,000 for couples. In reality, only about one in three retirees reach this level, especially if they do not fully own their home.
Experts have long called for changes to the pension and tax systems. Suggestions include making retirement income streams more flexible, such as adjusting pension taper rates or offering better treatment for employment income. This would ease the tax burden and help retirees rely on part-time earnings or property assets without penalty. At present, many retirees find it financially smarter to stop working, as any income over $11,800 can trigger sharp reductions in pension payments and higher taxes.
Pressure for reform continues to build. Until policies shift, older Australians who choose or need to keep working may land in a tax situation that offsets the benefit of their income. Understanding retirement rules is essential, as even a small pay increase can push retirees into unexpectedly high tax territory.
