Should I retire early?
April 7, 2015
I am thinking about retiring early but like most retirees, I am concerned about the how long my funds will last. What alternatives should I be looking at?
In the past, it hasn’t been unusual to see employees take a voluntary redundancy, retire from work and head on the road to pursue all the things they have been burning to do and see. And what’s not attractive about pursuing your dreams, golfing, travelling, fishing and the list goes on?
Unfortunately the world is changing and already we are seeing proof that an early retirement might leave you stranded down the track.
Employees approaching retirement are seeing the advancements to health care and are realising that they may last longer and hence need to save more money in order to live longer.
Employers are concerned about a skills shortage and that there won’t be enough people working to fill the jobs required.
The government is concerned about the cost of health, aged care and pensions and the bottom line is that we need more taxpayers to support this growing cost.
These issues are not unique to Australia, in fact many developed countries are searching for solutions to exactly the same problems.
So what will it take?
It is likely that there will need to be incentives introduced to either keep you in the work force or restrict what you can spend and these are already in progress.
For example, the preservation age for accessing your super has increased from 55 to 60 depending on your age. From July 1, 2017, the qualifying age for Age Pension will increase from 65 years to 65 years and six months. The qualifying age will then increase by six months every two years, reaching 67 years by July 1, 2023. There may likely be more to come in this year’s Federal Budget released in May.
Some retirees though, have recognised the advantages of staying in the workforce by working part time, running their own businesses, consulting or contracting out their services. They may still have partial access to super if they are using a transition to retire pension, allowing them to still earn money but not draw down on their superannuation funds at a more rapid rate. They are also taking advantage of incentives such as the tax free threshold, super incentives by adding extra into their super fund and even Age Pension benefits where some of your income is exempt.
So if you don’t want to go cold turkey when it comes to retiring, consider these four ways to transition into retirement.
Wind Down – Work part time or on a casual basis.
Step Down – Work full time in a job with lower responsibility so it takes some pressure off.
Time Out – Take time off for travel before returning to work. Use up some Long Service Leave. A nice long break can sometimes give you the motivation to keep going a few more years.
Ease Down – Reduce your hours of work. You may have the option to take extra annual leave with a reduced salary which may keep you working for that little bit longer.
The benefits of transitioning to retirement is really about keeping the money coming in so your retirement savings last much longer. You may be surprised how much of a difference this can really make – it’s really about having your retirement cake and eating it too.
Olivia Maragna is the co-founder of Aspire Retire Financial Services and is a respected and independent financial expert. Olivia’s advice is general in nature and readers should seek their own professional advice before making any financial decisions.
You can follow Olivia on Facebook or Twitter at https://twitter.com/oliviamaragna