Objective To quantify the poverty status and level of disadvantage experienced by Australians aged 45–64 years who have left the labour force due to diabetes in 2010. Research Design and Methods A purpose-built microsimulation model, HealthWealthMOD2030, was used to estimate the poverty status and level of disadvantage of those aged 45–64 years who prematurely retire from the workforce due to diabetes. A multiple regression model was used to identify significant differences in rates of income poverty and the degree of disadvantage between those out of the labour force due to diabetes and those employed full- or part-time with no diabetes. Results 63.9% of people aged 45–64 years who were out of the labour force due to diabetes were in poverty in 2010. The odds of being in poverty for those with no diabetes and employed full-time (OR of being in poverty 0.02 95%CI: 0.01–0.04) or part-time (OR of being in poverty 0.10 95%CI: 0.05–0.23) are significantly lower than those for persons not in the labour force due to diabetes. Amongst those with diabetes, those who were able to stay in either full- or part-time employment were as much as 97% less likely to be in poverty than those who had to retire early because of the condition. Sensitivity analysis was used to assess impacts of different poverty line thresholds and key socioeconomic predictors of poverty. Conclusions This study has shown that having diabetes and not being in the labour force because of this condition significantly increases the chances of living in poverty. Intervening to prevent or delay the onset of diabetes is likely to improve their living standards.