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If you’re thinking of retiring soon you might be wondering about the difference a few extra years in the workforce could make. Should you stick it out a bit longer, or focus on saving as much as possible now and plan to stop work sooner?
Timing your retirement is not a simple decision, so read on to discover the factors you may need to think about.
Benefits of delaying retirement
The downside of putting off retirement is clear – you spend longer working, and less time enjoying your retirement! Even so, there are some good reasons working longer might be worth considering.
The longer you remain employed, the more time your super and other savings have to accumulate before you start drawing retirement income.
At the same time, the nest egg you need will be smaller because you won’t need to finance so many years in retirement. If you’re concerned you haven’t saved enough, staying in the workforce a little longer might be just the ticket.
If you’re likely to be eligible for some Age Pension, it could be worth continuing to work until you reach your Age Pension age, which increased to 67 from 1 July 2023.
If you’re close to your pension age when you retire, or better yet have already reached it, you’ll minimise the amount you need to draw from your own savings while you’re waiting for your entitlements to come through.
The alternative – saving more to retire sooner
If staying at work doesn’t appeal, but you’ve got some extra to save, a savings sprint before retirement could give you the boost you need.
The more you can accumulate in the concessionally taxed super environment the longer your savings should last. After retirement, super savings that you have converted into an income stream earn tax-free returns, boosting your investment return compared with investments outside the system.
How long could retirement be?
No one likes to think about their own mortality, but it’s essential to consider how long we might live to estimate the time our retirement savings need to last. Australians are living longer and healthier lives than ever, so your retirement might be longer than you think.
While retirement at age 60 is a popular goal, today’s 60-year-olds could end up living almost as long in retirement as they spent in the workforce. That’s a long time to expect your savings to last.
A long life expectancy could be a good reason to keep working for more years than you originally planned. The LifeSpan calculator provided to SuperGuide readers by Optimum Pensions is a comprehensive tool you can use to estimate the length of your retirement.
The next step is to work out how far your savings are likely to stretch, given your preferred retirement age and financial situation.
Timing retirement is a very personal choice, and not always in our control, but estimating the length of your retirement and doing some modelling is a good place to start.
Delaying retirement can help if you haven’t managed to save the amount that would make you comfortable, or a final savings sprint could allow you to make the transition sooner. A combination of both strategies (delaying retirement and boosting contributions) would be even more effective, so be sure to crunch your numbers before making a final decision.