Objectives: To assess the income-poverty status of Australians who were aged between 45 and 64 years and were out of the labour force due to ill health. Design: A cross-sectional study using a microsimulation model of the 2009 Australian population (HealthandWealthMOD). Setting: 2009 Australian population. Participants: 9198 people aged between 45 and 64 years surveyed for the 2003 Survey of Disability, Ageing and Carers. Primary outcome measures: 50% of the median equivalised income-unit-income poverty line. Results: It was found that individuals who had retired early due to other reasons were significantly less likely to be in income poverty than those retired due to ill health (OR 0.43 95% CI 0.33 to 0.51), and there was no significant difference in the likelihood of being in income poverty between these individuals and those unemployed. Being in the same family as someone who is retired due to illness also significantly increases an individual's chance of being in income poverty. Conclusions: It can be seen that being retired due to illness impacts both the individual and their family.