When to retire
Figuring out when to retire is more than just a question of when you would like to retire. You need to consider how much your planned retirement will cost and how many years your money needs to last.
There are guidelines you can use to make sure you are not retiring too early - and to calculate the full benefit of working a bit longer, even if it is only part-time. As with any significant financial decision, you should definitely seek professional advice prior to getting out of the workforce.
Key retirement ages
There are big taxation implications to be looked at if you are considering an early retirement. The key retirement ages for tax purposes are 55 and 60. This is because the taxation on lump sum withdrawals is significantly reduced once you reach preservation age.
Tax on lump sum withdrawals
||Tax on taxable component
||First $185,000 tax-free
Amounts above $185,000 taxed at 15% (and the temporary Budget Repair levy 2%)
|Under age 55
(current preservation age)
|20% (Medicare levy)
How many years you need to fund in retirement
Australians are living longer on average than in the past, and as a consequence we will have to stretch retirement savings further. The following table provides average remaining life expectancy, and will help you determine the number of years you may have in retirement. Your family history, current lifestyle and state of health can help you decide whether your lifespan is likely to be longer or shorter than the community averages shown here.
Remaining life expectancy
Source: Australian Bureau of Statistics, Life Expectancy Tables, Australia 2010-2012
How much money will you need?
The rule of thumb is generally that self-funded retirees need between 60 and 65% of their gross pre-retirement income to maintain their lifestyle. For more information about your annual requirements in retirement and how this equates to a lump sum, see How much super is enough?
Once you have worked out your annual retirement income, have a trial run at living on this amount. You could salary sacrifice the difference between your current wage and your proposed retirement income into your super, that way you test your retirement income and boost your super simultaneously.
How can you fund more retirement years?
In most circumstances, working an extra year will fund more than one retirement year.
This will depend on your situation - your age, how much you are earning and what you are contributing to super. But the principle that a little extra work pays for a lot more retirement should hold good.
Case Study: George
George is 60 and currently working full-time. He has just become a grandfather for the first time and is looking to cut back his working hours to four days a week to spend more time with this family without reducing his income.
George can achieve this by supplementing his reduced income by drawing down from his superannuation. To do this, George would simply need to open and transfer the majority of his accumulation super balance into a Telstra Super RetireAccess account.
||Current 5 day week
||4 day week No TTR strategy
||4 day week With TTR strategy
|Gross income (ex-super)
|Super Guarantee (9.5%)
|Less tax & Medicare
|After tax income
|TTR Income Stream
|Take home income
By adopting this transition to retirement strategy, George can achieve the following:
- greater work/life balance with increased leisure time
- retain the same post-tax income level per year.
Working out when you should retire involves many considerations, so it can be a difficult decision to make. Given how few people make a comeback to the workforce after retiring, our advice is simple: stay at work long enough to consult a financial adviser and work out the full financial implications of retiring either sooner or later.
Telstra Super Financial Planning are here to help our members plan their retirements. To make an appointment, call Telstra Super on 1300 033 166 or request an appointment online.