Brought to you by Aware Super
Cameron Bayley
As Australians continue to redefine the way they approach retirement, the decision to ‘down tools’ is rarely a simple calculation – but there are financial and personal waypoints that can act as a guide.
A retirement identity shift
Being able to visualise and plan what the ‘retirement version’ of you looks like goes a long way to revealing whether the time is right.
“People’s identity can be really strongly tied to their work,” says Lynda Cross, head of guidance at Aware Super. “So, think through what that means not to have that identity any more and shifting your purpose towards other things.”
Picture what your day-to-day will be – a timetable that, while being totally flexible, can give constructive shape to your next chapter.
“[Those] living their best retirement life are those that have structure, routine and plan,” says Jenny Brown, CEO and founder of JBS Financial Strategists.
Choose your path to retirement
Stopping work immediately isn’t the only option these days. “You might just cut back your working hours and gradually ease yourself into the idea of retirement,” Cross offers. “Or you could leave your job and pick up some part-time or casual work in another way.”
She adds that the Work Bonus offered by the government can offset the income earned this way, reducing its impact on your age pension. For some, their work situation might even enable a ‘trial run’ at retirement.
“If you’ve got long service leave, or can take a sabbatical year, [use it] to figure out ‘Am I ready for this?’, Cross says.
Stress test your nest egg
Of course, a considerable part of deciding your retirement readiness is ensuring you’re financially ready. “Because we’re all living so much longer, if you retire at 60 to 65 you need to plan for 30 years,” says Brown.
Looking at the status of savings, super and assets are important here. “For your first 10 to 15 years you’re going to be spending at least what you were spending beforehand,” she adds. “Because you’ve got your cost of living, plus things like travel.”
Cross agrees: “It’s knowing how much you want and understanding where that income will come from.”
“[Asking yourself] what are my entitlements from the government versus how much am I going to need to fund myself?”
This includes doing a status check on any insurance you might have, especially if set up in your younger years. “Review your cover – some might need to put it up, but many people nearing retirement might be able to reduce those premiums,” Cross says.
“Obviously if you have an event, your pay-out is less, but if you don’t, you’re able to save those premiums towards your retirement.”
The final sprint: Maximise your contributions
Those nearing retirement should do a bit of a deep dive on their super, says Brown. “They need to know where it is, understand what it does and [consider] maximising contributions wherever possible.”
This is a popular strategy for many Australians. “They’re starting to feel like they’ve got a bit more available cash flow and the system really has opened up more opportunities in that space in some ways that are really powerful,” says Cross.
There are various options to explore, like before-tax (or concessional) contributions such as salary sacrificing through your employer.
“[Even] if you’re not employed you can actually make a personal contribution and claim a tax deduction the same way, which is something people don’t often realise,” Cross reveals.
These contributions are capped, but can be varied if you haven’t maximised them in the past five years. The rules also vary with age, so check with the ATO for specific detail.
Use the help that’s out there
If judging when to retire seems complicated, it’s a relief to know there is an abundance of resources available to help clarify your situation.
“Check out the tools available online in your super fund or outside of it because there are some really cool planning tools that can just help you visualise the different scenarios,” explains Cross.
Industry leaders, including Aware Super, provide sophisticated modelling tools – such as its Age Pension Eligibility Calculator – to help members stress-test various financial scenarios.
There’s often help built into your super-fund offerings, too, she adds.
“Aware and most other super funds will have an advice service that’s included as part of your membership. It can cover certain things and not other things, so just check out what you can get at no cost first.”
On top of this, financial advisers can also offer comprehensive direction – just ensure they fit your outlook and situation. “You’ve to resonate with the adviser. It’s a long-term relationship,” says Brown.
Navigating these steps can take the mystery out of retirement readiness, allowing you to embrace a more relaxed life with a foundation of financial security.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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