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Your retirement goals
What does retirement look like for you? Are you looking forward to finishing work or are you dreading the thought of no longer going to work every day? For some people it’s a time to look forward to, while for others, it is a daunting phase of life. For many of us, work is a key aspect of our identity, our social network and our financial wellbeing.
In this article, we take you through the ‘what, when and how’ of transitioning to retirement.
It’s worth taking the time to think about your goals and what you want to achieve in retirement. Planning and thinking about retirement may also ease some of your associated worries.
Once you start to go into detail it may help you (and your partner, if relevant) to consider how you will make the transition to full-time retirement and, importantly, what financial resources you may need to realise your goals.
When you retire, you no longer have a regular income so you’ll need to access your super, any other investments you may have and the Government’s Age Pension benefits to support yourself.
To access your super you must first reach your ‘preservation age’. The minimum preservation age is 55 years for those born before July 1960. This increases on a sliding scale up to age 60 for anyone born after June 1964.
However, you can choose to work longer and retire later, especially if you think you’ll need to rely on the Age Pension in retirement because you can’t access the Age Pension until much later.
If you were born after 1 January 1957, the age you are eligible for the Age Pension is age 67. If you were born before 1957 then you will become eligible at a slightly younger age, as shown in the table below.
Timing your retirement is important because if you retire too early, your super and other investments may run out before you’re eligible for the Age Pension. For instance, for someone born after 1964, if they retire at 60, then their super and other investments would need to last for seven years before they are eligible for the Age Pension.
For some people, stopping work and going straight into full time retirement is a good option. For others, a transition to retirement strategy gives them more time to save for retirement or additional emotional stability by slowly easing into retirement.
By using a ‘transition to retirement pension’, you can generally access between 4-10% of your super balance each year, as long as you've reached your preservation age, even if you’re still working. You can’t take a lump sum but your pension can make periodic payments either fortnightly, monthly, quarterly, half-yearly or yearly.
A transition to retirement strategy can be used in two ways:
A transition-to-retirement strategy allows you to supplement your income by drawing a regular pension payment from your super fund. You could choose to move to part‑time work or reduce your working hours, and replace lost salary with income from the transition-to-retirement pension.
Or, you could continue to work full-time but reduce your tax by taking a pension and salary sacrificing some of your income into super. This is how it works:
Once you decide to retire full time you can take your super as a lump sum, start an account-based pension, also known as an income stream, or a combination of both. The benefit of starting an account-based pension is that it provides a regular income with minimum pension payments each year, which is calculated according to your age. Unlike a transition-to-retirement pension, there is no maximum payment amount.
How long your pension lasts depends on what you want to do in retirement, how much super you have, how much you withdraw each payment, the investment returns and the amount of fees. So, careful planning is important.
If you’re nearing retirement and need to put a plan in place you should seek advice from your financial adviser. They can help you manage your transition to retirement and give you peace of mind. If you don’t have an adviser we can put you in touch with one.