Thinking about retirement

For many Australians the last couple of years have been, well, rather brutal. Even if your business, career did okay or even well, or you took a good break at Christmas, you might be feeling a bit tired, Covid having taken its toll.

Maybe you’re at an age where you’re thinking about retirement, maybe bringing those plans forward a bit, having been spurred on by the thoughts of freedom and ‘good life’ retirement might represent.

Retirement has changed and continues to change

The retirement of old has changed significantly. When your parents or grandparents retired (possibly from their one job for life), there was a party, a gold watch and that was it. You ‘retired’ to your garden, the shed, the grandchildren, your wine cellar, your verandah, rocking chair and a book, etc. You didn’t work again. ‘Ah, bliss’, you might think.

And once upon a time (say back in 2019 and earlier), the average age of retirement was 55 – for men, it was 59 and women, 55. ‘Oooo’, you’re thinking, ‘I’m nearly there’.

Reasons to delay your retirement plans

But wait, you might want to delay your retirement plans a bit. There’s some good research around that shows that cutting yourself off socially (and yes, working often plays a huge part in that), increases the risk for premature death, even more so than many key ill-health indicators such as heart disease, particularly for men for whom working is likely to be their main means of social networking.

Premature death aside, the legislation might also put a bit of a dampener on your plan. The government changed the official ‘retirement age’ for anyone born after 1957 from 65 to 67. Now that’s just the age for receiving the aged pension. So if you were planning on accessing the pension or part pension, you’ll have to wait a bit longer (and asset tests apply). ‘But’, you think, ‘there’s my super!’ Hoorah! However, you can’t access your super (if you were born after July 1, 1964) until you turn 60.

Of course that doesn’t mean you can’t cease working before then. Sure, you can, you’ll just have to fund everything out of your own cash reserves prior to 60. You’ll just need to make sure you’ve enough in the kitty to sustain your now longer life (men to an average age of 85 and women 87 – so plan on funding at least 30 years in retirement). Hmmm, that’s quite a long time to be doing ‘nothing’, huh.

Hence the combination of all of the above has driven the average age people intend to retire up to 64 for women and 67 for men. And that was before Covid and current European invasion goings on really hit the research and super balances – which might necessitate working a bit longer to build a bigger nest egg.

Transitioning to retirement (TTR)

Rather than doing the ‘stopping work entirely’ version of retirement at 55, 60 or whatever age you’re planning, more and more Australians are easing in via a transition to retirement plan (TTR) using their super as a pension. By transitioning in, maybe working part-time or doing some consulting or teaching on the side, you can see how you like working less (some people truly hate retirement or even the thought of it and continue working until their late 70s or 80s).

The benefits of TTR

You continue to earn income and receive employer based super guarantee payments. You could then pump some or all of your income into your super (thresholds apply) for maximum tax benefit.

There are some rules to TTR  though

• You can only withdraw your money as an income stream, not a lump sum.
• There are minimum annual withdrawals
• You can only withdraw a maximum of 10% of your TTR balance
• Whilst your TTR income is tax free once you turn 60, if you’re 55-59 you pay your marginal tax rate (less a tax off-set of 15% – ie: the tax you’ve already paid on your super contribution).

The downside of TTR

You might well have less in your super balance when you retire.

The sum of all of those parts? Retirement is not the fixed point in time it used to be. You can make it work for you, how you need it to with a little pre-planning. And like everything, the best time to plan was 20 years ago, or today.

And that’s where we can help. If you’d like to talk to us about how best to plan for your retirement, working towards a business sale or planning your tax affairs in retirement, we’d be delighted to talk. You can call us on 02 6023 1700 or drop us a note via the form below.

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