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Retirement Timing: When to Retire and How to Plan It

May 26, 2023 | Retirement Planning

Deciding when to hang up your work hat and embrace retirement is one of the most significant life decisions you’ll ever make, and one not to be taken lightly. Your retirement timing can have a profound impact not just on your finances, but on your lifestyle, health, and overall happiness in your golden years.

A well-timed retirement is about more than just reaching the Age Pension eligibility age or your superannuation preservation age. It’s about understanding your financial readiness, health status, desired lifestyle, and the potential impact of market conditions on your investments. It’s also about considering your personal and family circumstances, the implications of your social security and pension benefits, and your emotional and psychological readiness for this major life transition.

The journey towards a fulfilling retirement requires careful planning, thoughtful conversations with your loved ones, and professional advice. After all, retirement isn’t merely the end of your working years – it’s the start of an exciting new chapter in your life. So it’s crucial to ensure you step into it at the right time.

In the sections that follow, we’ll delve into each of these important factors to help you navigate this journey, ensuring that your step into retirement is timed perfectly for your unique situation.

Are You Financially Ready For Retirement?

Financial Readiness for Retirement

Preparing financially for retirement is the cornerstone of the plan. Here are ways to assess how financially ready you are:

1. Evaluate Your Savings and Investments

Review your superannuation accounts, savings, and any other investments like properties or shares. Consider their current worth and future growth. For instance, if you’re part of a superannuation fund, work out what it could be worth at the time you plan to retire.

2. Estimate Retirement Expenses

Calculate your potential costs in retirement. This isn’t just bills and groceries. Think about healthcare, which may likely increase, and the fun stuff in life – travel, hobbies, and maybe some home renos. For example, if overseas travel is on the cards, add this to your yearly retirement budget.

3. Understand Your Retirement Income

In Australia, income in retirement can come from a combination of superannuation, Age Pension, and any returns from personal investments. Be aware that depending on your birth year, your superannuation preservation age might not match your pension age or when you plan to retire. For instance, if you were born after July 1, 1964, you can access your super from 60, but you won’t qualify for the Age Pension until 67.

4. Do the Maths!

See if your savings and projected income will cover your estimated expenses. To make it easier, you can use a retirement calculator for this purpose. If there’s a gap, think about ways to save more, cut back on retirement expenses, or maybe push out your retirement date.

Remember, planning early is essential, as life can throw curveballs, such as illness or redundancy, that may lead to an earlier-than-expected retirement. Regularly checking your finances and adjusting your plan will help you stay on track for a comfortable retirement.

Health and Lifestyle Considerations

Health and Lifestyle Factors Affecting Retirement

Your health and lifestyle preferences can greatly impact when and how you will retire in the future. Here are some steps to take so you can create a retirement plan that aligns with your health status and lifestyle aspirations:

1. Assess Your Health

Take stock of your current health and think about potential future healthcare costs. Remember, as we age, healthcare costs can go up, so ensure these are factored into your retirement budget.

2. Dream Up Your Retirement

Picture your perfect retirement. Will you be globetrotting, picking up new hobbies, or simply enjoying a quieter pace of life? Whatever it looks like, make sure you’ve considered the costs. For example, if you plan to take up golf, remember to factor in club memberships and your equipment.

3. Think About Work

Retirement doesn’t have to mean stopping work entirely. Consider if you’d like to continue working part-time while transitioning into full retirement, or to start a new casual venture that capitalises on your years of professional experience or a hobby. Not only can this provide you with additional income, but it can also offer you social interaction and a sense of purpose.

Social Security and Pension Benefits

Social Security and Pension Benefits

Understanding how your social security and pension benefits work can make a big difference in your retirement timing. For some, it can either serve as the foundation of their retirement income, whilst for others it is a little supplementary income to add to their self-funding – it can greatly influence the lifestyle you’ll be able to maintain during your post-work years.

1. Consider Timing

The timing of your retirement can influence your eligibility for Age Pension and how much you can take from your super. For example, retiring early might mean waiting a bit longer to access the Age Pension, dipping into your super sooner, or ensuring that you have sufficient non-super assets to fund your life until you can access these alternate sources of income.

2. Review Your Super and Pension Options

When it comes to your super, you have choices. You could take it as a lump sum, set up a regular income stream, or a combination of both.

You could, for example, purchase an account-based pension based on your super savings. The Age Pension complements your super savings, while the account-based pension provides regular income from your super starting at your ‘preservation age’ (around 55-60). It also offers flexibility and tax advantages.

It’s important to note that an account-based pension is not a guaranteed lifelong income, it will only continue whilst you have funds available to draw from. Alternatively, once you pass away, any remaining superannuation balance will be paid to beneficiaries or your estate when you pass away unless you have a ‘reversionary beneficiary’ nominated.

3. Explore Additional Support and Tax Offsets

Besides superannuation and the Age Pension, other service pensions or social security benefits may also be available to you. In addition, retirees or those aged 60 and above might also be eligible for tax offsets, such as the Seniors and Pensioners Tax Offset (SAPTO) and a tax offset for super contributions made on behalf of your spouse.

Knowing what benefits are at your disposal can help you best utilise them towards building your retirement income.

Market Conditions and Economic Factors

When planning your retirement timing, don’t forget to factor in the economy and the performance of your investments. Staying on top can help you make adjustments to your retirement plan as needed and ensure you’re well-prepared for whatever the market throws your way.

Economic Forecast

Keep an eye on the broader economy, as it can affect your investments and superannuation. For example, a downturn could impact the value of your investments or slow the growth of your super. This is one reason why diversification is so important – it helps mitigate market risk and increases the likelihood of achieving long-term financial stability.

Investment Performance

Regularly review how your investments are doing. If they’re doing well, you might be able to retire sooner. If they’re not performing as expected, you might need to adjust your retirement plans or look at other investment strategies. It’s always important to remember that past performance is not indicative of future returns.

Personal and Family Factors

Your personal and family circumstances can play a big role in when and how you retire. A couple of things to consider are:

Your Family Responsibilities

If you’re caring for ageing parents or supporting adult kids, factor these into your plans. This might mean saving a bit more or delaying retirement until these responsibilities are less demanding.

Your Partner’s Plans

If you’ve got a spouse or partner, chat about your retirement dreams. If one of you plans to retire before the other, consider how that will impact your joint finances and lifestyle.

Emotional and Psychological Preparedness

Retirement isn’t just a financial decision. It’s a lifestyle change that can bring emotional and psychological shifts. Here’s how to prepare:

Reflect On Your Readiness

Think about how you feel about retiring. Are you looking forward to it, or does it make you a bit nervous? It’s normal to have mixed feelings, so take some time to process your thoughts.

Plan for Change

Retirement brings changes to your daily routine and social interactions. Think about how you’ll adapt to these changes. For instance, finding new hobbies or volunteer work can keep you socially connected and give you a sense of purpose.

Seeking Professional Advice

Retirement planning can be tricky. Having a professional by your side can help you make the most of your savings and figure out the best time to retire.

Chat with a Financial Adviser

A financial adviser can give you personalised advice based on your financial situation and goals. They can help you navigate the complexities of superannuation, investment strategies, and the Age Pension so that you feel more secure and confident about your retirement timing.

Consult Other Experts

Don’t forget about estate planning and tax considerations. A solicitor who specialises in estate planning can help you sort out your Will and any trusts, while an accountant can help minimise your tax in the years leading up to and into retirement.

How Ready Are You For Retirement?

Concerned About Your Retirement Timing?

Retiring is a big step, and getting the timing right involves weighing up several key factors. Financial readiness, health, lifestyle, benefits, market conditions, personal circumstances, and emotional preparedness will all play a role.

The best retirement plan is the one that fits with your personal circumstances and lifestyle preferences. It’s not just about the money, but also about making sure you’re ready to enjoy this new chapter in your life.

So take your time, have those important conversations, and don’t hesitate to get professional advice. Retirement should be about enjoying your golden years to the fullest. With smart planning and the right retirement timing, you can make sure yours will be.

Plan Your Retirement with Coastal Advice Group

Retirement is a significant life milestone that allows you to rest and enjoy the fruits of your hard-earned labour. However, it’s not a one-size-fits-all plan, and since everyone has specific needs and wants, hiring an expert retirement adviser can help you plan a secure and comfortable retirement.

If you want to enjoy retirement with peace of mind knowing there is a financial strategy to take care of the future, speak to the team at Coastal Advice Group. We help our clients enjoy their dream retirement through personalised financial advice.

Call us or book online to secure your  consultation today!