Taking your super early due to ill health? 7 tips to help

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.

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

Source: www.ato.gov.au

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.

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

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.

[1] Involuntary Retirement: Characteristics and Implications, AIST / Australian Centre for Financial Studies, 2014