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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 in fact it’s quite common.
In 2016-17, personal health or physical ability was the main reason 21% of older workers decided to retire, according to Australian Bureau of Statistics research.
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 people realise. A 2014 report estimated almost three-quarters of males and more than 40% of women that retire before the age of 55 do so involuntarily, with health issues being the biggest reason.
What’s more concerning is that early retirement due to ill health is not only hard on the early retiree, but also on their finances.
The McKell Institute Report found Aussies retiring early (aged 50-54) due to ill health lose up to $142,100 in super. The losses are greatest the earlier you retire, but even in your early 60s the knock to your super balance can be significant.
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Case study – Financial impact of retiring early
Russell is aged 60 and his current salary is $90,000. His employer is paying a 9.5% employer contribution into his super account.
Due ill health, Russell is forced to retire five years earlier than planned.
This means he will have $42,759 less in employer contributions added to his super account than if he had left work as planned at age 65.
$90,000 x 9.5% employer contribution x 5 years
= $42,759 less in Russell’s super account at retirement
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 or bonds.
Check if you’re entitled to any government benefits, including Newstart or the Disability Support Pension. The Department of Human Services website 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||Preservation age|
|Before 1 July 1960||55|
|1 July 1960 – 30 June 1961||56|
|1 July 1961 – 30 June 1962||57|
|1 July 1962 – 30 June 1963||58|
|1 July 1963 – 30 June 1964||59|
|From 1 July 1964||60|
Good to know
Your preservation age is not the same as the age you can apply to receive the Age Pension. Your preservation age only relates to accessing the benefits in your super account.
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 your employer’s paycheck), take a partial or full lump sum, or keep your savings in your super account and let them continue growing.
If you access your super before age 60, you may have to pay tax on a portion of the benefit you withdraw.
Your super benefit contains both tax-free and taxable components and different tax rates apply if you withdraw them before your preservation age, or before age 60. For more information, read SuperGuide article Your tax guide to accessing your super under age 60.
Step 4 – Apply for some of your super benefit
If you haven’t reached your preservation age and don’t qualify for the conditions of release, consider applying to your super fund for access.
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. For more information, read SuperGuide articles:
- When can I access my super? All conditions of release explained
- Early release of super on compassionate grounds
Withdrawing your super early is a step you shouldn’t take lightly – even if you are retiring due to ill health.
If you withdraw all your retirement savings and spend it, you may face a long gap before you qualify for the Age Pension or other government support as a source of retirement income.
Talk to an independent financial adviser, your super fund, or the government’s free Financial Information Service before making any decision.
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 2019 the qualifying age for the Age Pension rose to 66 and continues to rise by six months every two years.
|If you were born between:||You are eligible for Age Pension at age:|
|1 July 1952 and 31 December 1953||65 and 6 months|
|1 January 1954 and 30 June 1955||66|
|1 July 1955 and 31 December 1956||66 and 6 months|
|1 January 1957 and later||67|
For more information, check the Centrelink website www.humanservices.gov.au.
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. For more information, see SuperGuide article What is the Pension Loan Scheme and how does it work?
You may need to think about downsizing or relocating to another city or state to free up some money to live on.
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 65 and over, you may be eligible to make a Downsizer contribution into your super account. For more information, see SuperGuide article Downsizer contributions: How do they work and what are the current rules?
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 here 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 smile – high in the early years before settling into a regular pattern mid-retirement, before rising again later. For more information, see SuperGuide article 3 stages of retirement: How to plan your retirement spending.
Remember to sign up for your state’s Seniors Card to save on purchases, travel and entertainment costs in retirement.
For more information, see SuperGuide article Your simple guide to state Seniors Cards: How they can save you money.
 Involuntary Retirement: Characteristics and Implications, AIST / Australian Centre for Financial Studies, 2014
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