When you think about retirement it’s not just about financial security - but that is a big part of it. Making sure you can support yourself will allow you to spend more time with the people you love stress-free. To set yourself up for success in retirement you should make sure you consider each of the following steps.
Decide when you want to retire
In Australia the retirement age is 66 years and 6 months. That’s the age when you become eligible to receive the Age Pension if you pass the income and assets test. But if you plan to live off your own savings when you retire, age doesn’t matter. Likewise if you’re concerned about your finances you may want to work after the official retirement age. The following factors should be considered when deciding when to retire:
Your living situation
You and your partner’s preferences
Eligibility for the Age Pension
The ability to access your Superannuation.
Determine your lifestyle goals for the future
Retirement means something different for everyone so you need to think about how you want to live your life when you stop working. You may want to buy a campervan or a caravan and travel around Australia, perhaps you want to spend the rest of your days cruising around the world, or you might like to simply settle down in your own home tending to the garden and volunteering for local community groups. Before you can save for your retirement you need to figure out how you want to spend your retirement.
Figure out how much money you need to survive
Calculate what costs you will have during your retirement including:
Mortgage payments or rent;
Car payments or expenses;
Medical costs; and
Figures from the Association of Superannuation Funds of Australia has an industry retirement standard which acts as a guide to help you determine how much you will need for either a modest, or a comfortable retirement.
If you own your own home the general estimate is that you will need two-thirds or 67% of your pre-retirement income to maintain the same standard of living.
ASFA Retirement Standard
Single (annual budget)
Couple (annual budget)
Source: ASFA, September quarter 2021
The average lump sum needed to support a comfortable lifestyle for someone on a partial Age Pension is $640,000 for a couple and $545,000 for a single person.
Figure out where the money will come from
Identify and consolidate the income streams which will support your retirement. They could include:
The Age Pension
Shares, stocks, bonds or cryptocurrency
Work out how to withdraw your Super
There are multiple options when it comes to withdrawing your Superannuation savings. The choice you make will depend on your personal circumstances.
Transitioning funds to the retirement pension - this allows you to access some of your funds when you reach preservation age but there will be a limit on how much you withdraw each financial year.
Account-based pension - this can be set up once you reach preservation age to transfer a set amount into your bank account on an ongoing basis. It acts like an income, and can be a tax effective option to utilise your Super.
Annuity - this involves organising an agreed amount of money to be transferred into your account over a fixed term or a lifetime. It’s similar to an account based pension.
Lump sum - this involves pulling all your money out in one go but it can be dangerous as you may be tempted to spend all your money at once. It will also stop generating interest.
Leaving the workforce for good is known as ‘traditional retirement’. This is when you stop working and never return. This is the classic form of retirement that most people aim for and involves saving significantly over your lifetime so you can try and quit early and enjoy a lengthy retirement.
When people hang up their boots at the end of a long career it can be hard for them to let go entirely. Semi-retirement is when someone decides to leave their lifelong career but continue working in some capacity. They may choose to work part time or casual hours or work as a contractor. This means they can still enjoy more time for their hobbies and other leisure activities while still earning a small income.
This is more like a sabbatical, where you take a period of time off work before returning to the workforce. Temporary retirement can last months or years, before someone begins a new career or returns to their old one. This requires careful financial planning because when you take time off work you are no longer accruing money in your superannuation account but you are still paying fees for the accounts management.
A basic retirement plan refers to the superannuation scheme which is mandatory for all Australian employees. It means putting away a certain percentage of your income to be invested in an independent retirement fund which can only be accessed when you reach a certain age - known as ‘preservation age’.
The following graphs show how much superannuation you need to retire on a $50,000 annual income. The figures were developed by Superguide.com.au and do not take into account personal circumstances. They apply to people who own their own home. Anyone with complicated financial circumstances should seek professional advice.
Years super lasts
Eligible for Age Pension?
Years super lasts
Eligible for Age Pension?