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- Poor health and early retirement: the sobering financial facts
- Retiring early due to ill health: What can I do?
- Step 1: Work out your financial position
- Step 2: Know when you can access your super account
- Step 3: Check you meet a condition of release
- Step 4: Apply for some of your super benefit
- Step 5: Apply for the Age Pension
- Step 6: Review your housing options
- Step 7: Set a retirement expenses budget
Nobody expects to become sick. Even fewer of us think declining health will see us leaving employment earlier than we want, but it’s quite common.
According to research by the Australian Bureau of Statistics (ABS) on retirement intentions, the average age most Aussies plan to retire is 65.5 years. In reality, however, the average age at which current retirees left the workforce was only 55.4 years and this was often due to ill health or disability.
So, what can you do if you’re forced to retire early?
Poor health and early retirement: the sobering financial facts
More people retire ‘involuntarily’ than most of us realise.
The latest available statistics from the ABS found in 2018–19, 21% of retirees left their last job due to sickness, injury or disability. Among this group, the average age at retirement was only 54.9 years.
What’s more concerning is that early retirement due to ill health is often not only hard to accept if you planned to continue working, but it also has a major impact on your retirement finances.
Studies from around the world have found people who retire early due to ill health are more likely to be in income poverty than those retiring early for other reasons.
A 2018 report by the McKell Institute on the impact of ill health on retirement savings found Aussies retiring early (aged 50–54) due to ill health lose up to $142,100 in super. This consisted of $118,600 in foregone super contributions from working longer and $23,500 in early super withdrawals. The financial losses are greatest the earlier you retire, but even in your early 60s the knock to your super balance can be significant.
Retiring early due to ill health: What can I do?
Although there’s little you can do if forced to retire early due to ill health, you can take some simple steps to protect your finances:
Step 1: Work out your financial position
Take stock of your current financial situation and establish how much you will have to live on when you stop work. This includes your super benefits, personal savings and income from any investments such as a rental property, shares or bonds.
Check if you’re entitled to any government benefits, including the JobSeeker Payment or the Disability Support Pension. The Services Australia website (which includes Centrelink and Medicare) provides information about benefits you may be entitled to claim.
From here it’s a good idea to calculate your living expenses like bills, food and healthcare costs. When you know how much you need to pay your current bills, it’s easier to work out how much income you need.
Step 2: Know when you can access your super account
Generally, you’re permitted to access your super when you reach your preservation age, which varies depending on your date of birth. If you were born after 1 July 1964, you are not permitted to access your super benefit until you reach age 60.
|Date of birth
|Before 1 July 1960
|1 July 1960 – 30 June 1961
|1 July 1961 – 30 June 1962
|1 July 1962 – 30 June 1963
|1 July 1963 – 30 June 1964
|From 1 July 1964
Step 3: Check you meet a condition of release
To obtain your super, you also need to meet a condition of release:
- If you’ve reached your preservation age, you must be permanently retired to access your super
- If you’re age 60 and have left your job, you can access your super
- If you’re age 65 or over, you can access your super whether you’re working or not.
You can choose to take your super benefit as a regular payment (like the pay you received from your former employer), take a partial or full lump sum, or keep your savings in your super account and let them continue growing.
Step 4: Apply for some of your super benefit
If you haven’t reached your preservation age and don’t qualify for these age-based conditions of release, you can still consider applying to your super fund for access to your super.
There are special – very restricted – conditions of release that may allow you to receive some of your super benefit. These conditions include compassionate grounds, severe financial hardship, a terminal medical condition, temporary incapacity and permanent incapacity.
Step 5: Apply for the Age Pension
To qualify for a full or part Age Pension, you must have reached your Age Pension eligibility age and must satisfy an income test and an assets test.
In July 2021 the qualifying age for the Age Pension rose to 66 years and 6 months, and rises to 67 from 1 July 2023.
Try our Retirement Age Calculator.
Step 6: Review your housing options
Consider where you are living and whether your current home is still suitable.
Your home could also help fund your retirement through options like a reverse mortgage or loan. The government also offers retirees a form of reverse mortgage through the Home Equity Access Scheme (HEAS) – previously called the Pension Loan Scheme – that may be worth investigating. The HEAS provides you with regular retirement income payments if you own your home.
Alternatively, you may need to think about downsizing or relocating to another city or state to free up some money to live on and/or pay out your mortgage if you still have one.
Before downsizing, remember there are costs such as stamp duty involved in selling your home and buying a new one. You also need to consider the potential impact on any Age Pension or government benefit you’re entitled to receive.
If you downsize and are aged 60 and over, you may be eligible to make a downsizer contribution into your super account. (On 1 July 2022, the minimum eligibility age for downsizer contributions reduced from 65 to age 60.)
Step 7: Set a retirement expenses budget
Review your lifestyle to ensure it matches your financial resources. That means setting a budget.
Check out the ASFA Retirement Standard for ideas on how much the average retiree spends on items like housing, food, clothing and household goods.
Most people find their retirement expenses resemble a lop-sided smile – high in the early years before settling into a regular pattern mid-retirement, then rising again later as you age and your health declines.