Planning to retire before turning 60? What you need to consider

Unless you meet special early release conditions (see below) you need to have reached your preservation age to get your hands on the money in your super account. 

As the preservation age is currently 60, if you plan to retire earlier than this you will need sources of income other than super to support yourself for the period between your retirement and turning 60.

Your preservation age is not the same as the age you can apply to receive the Age Pension, which is now 67. Your preservation age only relates to accessing the benefits in your super account.

If you have retired and don’t intend to return to work, you can gain access to your entire super balance as soon as you celebrate your 60^th birthday.

If you do plan to return to work, you could consider opening a transition-to-retirement pension when you turn 60 to gain access to up to 10% of your account balance per year.

When you turn 65, you can access your entire super balance even if you have returned to work or plan to work in future.

2. Can I still make contributions into my super if I retire before age 60?

While you are aged under 75 you are free to make contributions into your super account.

However, once you reach age 67 you are required to be ‘gainfully employed’ for at least 40 hours in a period of 30 consecutive days during the financial year in order to make personal tax-deductible super contributions.

3. What are the tax implications of retiring before age 60?

Any income you receive from investments outside super is taxed at normal marginal rates, just as it was while you were working.

If you have been granted early access to your super due to disability or another form of early release, payments you receive before turning 60 are taxable.

Super paid to you after you turn 60 is tax free, unless you receive it from one of the rare untaxed super funds.

4. What are the options for withdrawing my super when I turn 60?

When you are granted full access to your super, you can choose to take a lump sum, an income stream or a combination of both:

• Income stream (super pension or annuity) – If you decide to take a super income stream, you will receive a series of regular payments from your super fund. The benefits of super income streams include convenient regular income and tax-free investment earnings.

• Lump sum – This is a single payment whereby you withdraw some or all of your super. If you take a lump sum the money is no longer within the super system; if you invest it outside super, any investment returns received on the money will not be taxed at super’s concessional tax rates. Instead, your investment earnings will be taxed at your marginal tax rate, which could be as high as 45% (plus the Medicare levy).

5. How long does my retirement income need to last?

To retire early, you’ll need savings outside super that can sustain you between your retirement age and when you turn 60.

Once you can tap into your super, you’ll need those savings to last you for life. Australians are living longer and healthier lives than ever. To get a personalised estimate on how long your retirement could be, try the lifetime estimator calculator provided to SuperGuide members by Optimum Pensions.

6. Can I start a transition-to-retirement income stream before age 60?

No, transition to retirement is only available once you turn 60. However, if you’re on the fence about early retirement, you might instead consider reducing your work hours when you turn 60 and using an income stream to supplement your income, rather than fully retiring.

A transition-to-retirement income stream (TTR or TRIS) is a pension paid to you from the money you have saved in your super account while you are still working. A maximum of 10% of the pension’s balance can be withdrawn each financial year. 

Starting a TTR can also allow you to salary sacrifice into your super account to save tax, while using your TTR income stream to supplement your salary so you can maintain your lifestyle.

7. Can I get the Age Pension if I retire before age 60?

Not immediately, but you may become eligible when you turn 67.

In addition to the age requirement, whether you are eligible for an Age Pension depends on you being able to satisfy the Age Pension assets test, income test  and residency requirements.

8. Can I get a health card or seniors card if I retire before age 60?

Retiring early doesn’t prevent you from obtaining concession cards but does mean you may have some time to wait between retirement and qualifying for discounts.

The Commonwealth Seniors Health Card (CSHC) doesn’t become available until you turn 67. However, you may qualify for a Low Income Health Care Card in the meantime.

State-based concession cards are available from age 60–65, depending on the state or territory you live in.

9. How much super do I need to retire before 60?

Leaving work early means more years in retirement to finance, increasing the amount you need to have saved.

The amount of super you will need to fund your retirement lifestyle depends on lots of factors, including:

• How many years you will spend in retirement
• Whether you are a couple or single
• How much you plan to spend each year
• Whether you own your home
• What assets or income you have outside super
• How much your investments earn
• Whether you are eligible for the Age Pension
• How much super you want to leave your dependants.

To help get you started, check out how much super you’ll need to retire.

To generate a tailored personal calculation, try TelstraSuper’s Retirement Lifestyle Planner. It allows you to estimate the income your super balance will be able to generate, as well as any Age Pension you may be eligible for. To take retirement before 60 into account, insert a career break into the tool in the ‘optional details’ section that starts at the age you plan to retire and ends when you plan to start drawing your super.