Forced to retire early? Your financial options explained

What benefits you’re entitled to, and what your options look like, depends on why you left work.

Redundancy or termination

You may receive a lump sum redundancy or termination payment, along with any unused annual or long service leave. This combined payout is worth planning for carefully, since what you do with it can take some of the stress out of your transition and set you up well for the future. See step 4.

You could also look for new work, perhaps in a role or industry you hadn’t considered before. Temporary, casual or part-time work can give you the time and flexibility to find a role that’s right for you, and Career Transition Assistance, a free government program for people aged 45 or older, can help build your confidence and skills for the job market.

A hobby or side interest could also become a source of extra income if turning it into a side hustle appeals to you.

Social security payments could help fill any income gap while you’re between jobs, but you may face a long waiting period if you received a large termination payment.

Caring responsibilities

When a family member needs care, many people choose to step away from work to provide it.

Resigning from work usually means additional redundancy or termination benefits are off the table, but you will still be entitled to your unused annual and long service leave.

Becoming a carer means checking your entitlement to Carer Payment or Carer Allowance, and looking into what the person you’re caring for may also be eligible for to help support the household.

Illness or injury

Leaving work for health-related reasons means you may be entitled to additional benefits such as workers’ compensation, income protection and total and permanent disability insurance.

If you’ve left work due to illness or injury, stop reading here and refer to our separate guides on accessing super and managing early retirement due to ill health.

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Step 1: Pause, and work out your current financial position

The first thing to remember if you’re forced to leave the workforce is not to panic or to make major decisions without thinking them through. A rash choice could leave you worse off financially and may not be reversible.

A careful plan will help you stay on track financially and work out how to handle your future expenses. Start by working how much you have and how much you’ll need will give you more confidence about your future.

Assets and income

Add up all your assets and potential sources of income, including redundancy or termination payments (after tax), personal savings, property you could sell, such as additional vehicles, and any investments such as a rental property, shares or bonds. Include your super and when you can access it, now or later.

Other lump sum termination payments can form an employment termination payment (ETP), which is taxed at concessional rates up to a cap. The rate you pay depends on your age, with a lower rate applying if you’re 60 or older. Any amount above the cap is taxed at the top marginal rate.

An ETP is made up of a range of payments, most commonly including gratuities (also known as a golden handshake), genuine redundancy payments above the tax-free limit, non-genuine redundancy payments, severance pay, invalidity payments and payments in lieu of notice.

Unused annual or long service leave is taxable at your normal marginal rates because it is not part of your ETP.

Debts

Total up your debts and the required repayments, including your mortgage, personal loans, car loans and any outstanding credit card balance.

Expenses

Go through your bank transaction history and credit card statements. Note your regular bills and unavoidable costs such as food, healthcare and transport and then identify expenses you have more control over. Look for places where you can cut back unnecessary spending.

Step 2: Check your Centrelink entitlements and how to apply

Your age and circumstances will affect whether you’re eligible for any payments from Centrelink, and what kind. 

If you’re 67 or older, you may be able to apply for the Age Pension.

If you’re caring for another person, a Carer Payment or Carer Allowance could help. Centrelink has a handy payment finder that can narrow down your options.

If you received a lump sum payment from your employer, the income maintenance period rules may apply to you, meaning you may need to wait before some payments start, or your payments may be reduced for a set time.

For example, if you receive a redundancy payment based on 10 weeks of pay and are also paid out four weeks of unused annual leave, your income maintenance period would be 14 weeks. Your payment during this period may be zero or a reduced amount, depending on the total figure you received from your employer.

The income maintenance period applies to JobSeeker, Parenting Payment, Youth Allowance, Farm Household Allowance, Austudy and the Disability Support Pension.

Step 3: Check in on your super

Super is probably a key part of your retirement plan, and leaving work earlier than expected means it’s even more important to take care of what you have.

If you’re under 60, focus on minimising costs and managing your balance with suitable investment options until you can access it. Check if you have insurance attached to your account and consider whether you need that cover or could cancel it to save money. Now may also be a good time to compare super funds to see if you’re getting the best deal.

If you’re 60 or older, you can consider whether to start drawing on your super to support your living costs or repay debts.

Super you haven’t cashed or used to start a pension won’t be assessed in Centrelink’s means tests until you turn 67, so think twice about how using your super may affect your payments if you haven’t yet reached this age.

A good retirement calculator is valuable to help model how your super and the Age Pension can support you in retirement, so you know what to expect.

Step 4: Consider options for your savings

Now you know the income you’ll have coming in and your expenses, you can assess what to do with any savings you have, including any termination payment from your employer.

Option 1: Hold cash

Keeping savings accessible could be a priority if you’ll need access to additional cash for expenses that exceed the income you have coming in, or for emergencies.

Option 2: Repay debts

Paying down debts could reduce your ongoing expenses by removing or lowering required repayments, as well as saving you interest.

If you’re receiving a Centrelink payment, using savings that are assessed in the means test towards your home mortgage or another debt that is not linked to an assessable asset could increase your payment rate by lowering your assessable assets and income. The financial information service at Centrelink can help you make an informed decision.

Option 3: Contribute to super or another investment

Contributing to super and claiming a tax deduction could reduce your income tax as well as boost your balance. You may be able to contribute more than the usual cap for the year if your total super balance was below $500,000 last 30 June using the carry-forward rule.

You could also consider non-concessional contributions or an investment outside super.

Step 5: Fill the gaps

If the steps you’ve completed so far show that your income and savings are not enough to support your expenses, it’s time to think about other options to meet your needs.

Option 1: Use your home

Consider if you could downsize or move to a new area to free up some equity from your home. Remember to consider transaction costs including estate agent fees, stamp duty and moving expenses, and how any boost to your savings would affect your Centrelink entitlements.

Alternatively, renting out a room could bring in some additional income, but don’t forget it would be taxable and could reduce your Centrelink benefits.

Lastly, a reverse mortgage or the home equity access scheme is another way to access the equity in your home without selling it.

Option 2: Debt relief

Contact your home mortgage provider to ask about financial hardship arrangements and consider talking to the National Debt Helpline about other debts and overdue bills.

Option 3: Seek help from family

Reaching out for assistance might not be appealing, but family may be willing to help, particularly if it’s temporary until you gain access to super or make other arrangements.

Option 4: Consider a return to work

If making ends meet is impossible, finding suitable new employment opportunities may be the only viable option.

Step 6: Seek advice

If you’re finding decision-making difficult, or you need some reassurance about your plan, it’s time to seek some professional advice. Your super fund can usually offer simple advice about your account, either over the phone or through digital tools, at no extra cost.

If this level of service doesn’t meet your needs, more comprehensive advice about your entire financial situation could come from your super fund or an external adviser, and it will come with a fee.