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The decision about when to retire is rarely made overnight. It’s a major life event and deserves careful thought and planning. Finances play a big part, but so do your health, your partner’s circumstances and whether you still enjoy your work or are itching to leave.
Sometimes the choice is made for you. Redundancy, ill health or a lack of job opportunities might force you to leave the workforce earlier than anticipated.
For those who do have a choice, you can retire whenever you wish provided you have the financial resources to support the life you want to lead in retirement. That’s because there is no such thing as retirement age in Australia, and no legal requirement to stop working.
Access to super and the Age Pension
When people ask, ‘When can I retire?’ or ‘What age can I retire?’, what they often mean is when can they access their super or the Age Pension. The age rules for each are different, which no doubt causes much of the confusion.
- Preservation age: This is the age when you can access your super provided you have also met a condition of release such as retiring. Your preservation age is between the ages of 55 and 60, depending on your date of birth. Even if you don’t wish to retire, once you reach preservation age you may be able to access part of your super and continue working full or part time by starting a transition to retirement pension (TRIP, also known as a transition to retirement income stream, or TRIS).
- Age Pension age: This is the age when you can access a full or part Age Pension, provided your income and assets are below certain thresholds. If you are eligible, you can currently access the Age Pension at 66 years, but this age will rise progressively to 67 by 1 July 2023.
The many ages of super
While your preservation age is the earliest you can access super, there are financial incentives to delay retirement until age 60 or beyond.
As mentioned above, you could continue working part time until age 60 and replace some of the lost income with a transition to retirement pension. This allows you to preserve most of your nest egg while easing into retirement and developing other interests.
When you stop work after age 60, you can access your super tax free whether you take it in the form of a lump sum, income stream or a combination of the two.
Once you reach 65, you can access your super even if you haven’t retired. Even then, there is no compulsion to withdraw your super – you can leave it untouched for as long as you like if you have other sources of income. You can also continue making super contributions until you turn 75, provided you satisfy the work test (that is, you must work 40 hours in any consecutive period of 30 days).
Age only part of the story
When it comes to working out the right time to retire, reaching your preservation age or Age Pension eligibility age are only part of the story. Just because you can access your super in your late 50s or early 60s doesn’t mean you should.
Before you dip into your savings, think carefully about all the factors that might have a bearing on your retirement finances. These include:
- How long you might live. None of us knows the answer to this, but your general health and wellbeing provide a clue, as do population mortality rates. Today’s 65-year-olds can expect to live to an average age of 84.9 years for men and 87.6 for women, or roughly 20 and 22 years respectively. Many of us will live well into our 90s. So do the math – if you retire at 60 you could potentially spend as much time in retirement as you did in the workforce and run the risk that your money will expire before you do.
- Your retirement income needs. This will depend on the lifestyle you hope to lead and how much it costs. As a rough guide, the ASFA Retirement Standard suggests a comfortable lifestyle will cost today’s homeowner retirees about $62,000 a year for couples and $44,000 for singles. Contrast this with the full Age Pension which is currently around $37,000 for couples and $24,500 for singles. That’s quite a gap that must be filled by super and other private savings.
- Your savings and investments. Australia’s retirement income system is based on three pillars – compulsory employer-paid super, private savings inside and outside super and the Age Pension. Some say home ownership is the fourth pillar. To work out whether your combined savings match your retirement income needs, go to SuperGuide’s Super to income reckoner and Income from super reckoner.
Australians are working longer
Australians are staying longer in the workforce, a trend that is likely to continue as the age at which people can access the Age Pension increases to 67. The fact that we are living longer and more likely to be asked to foot the bill for aged care services may also explain the trend.
The average age at retirement for people 45+ in 2016–17 (the latest figures available from the Australian Bureau of Statistics), was 55. However, for people who had retired in the previous five years, the average age increased to 63. This is consistent with the findings of the government’s Retirement Income Review, released in November 2020, which found the average retirement age is currently 62 to 65 years, with women tending to retire 1 to 3 years before men.
The average age people 45+ said they intend to retire also increased, to 65 up from 63 a decade earlier.
The main reason people gave for retiring when they did was eligibility for super or the Age Pension. However, significant numbers cited sickness, disability or redundancy.
Money isn’t everything
Money has a lot to do with the timing of retirement, but it’s not the only consideration. While some of us can’t wait to stop work and start ticking off our bucket list, others enjoy the mental stimulation and social interaction that work provides.
Now that Australians are staying fit and healthy for longer, it’s increasingly common for people to continue working part time or as a consultant for the intrinsic satisfaction as much as the income.
So think carefully about how you like to spend your time and how you plan to adjust to retirement. Retirement is likely to be more satisfying if you have developed interests outside work and strong family and social networks.
As you can see, there is no simple answer to the question of when you should retire. If you are thinking about retiring in the not-too-distant future, have a look at SuperGuide’s How to plan for retirement and How much super do I need to retire.
Money certainly isn’t everything, but the more financially independent you are the more options you will have to decide the timing and circumstances of your retirement.