For many Australians approaching retirement, the idea of stopping work completely is becoming less appealing. Instead, the trend is shifting towards making work optional, giving those nearing retirement age the freedom to decide how much (or how little) they want to work. Whether it’s through part-time work, freelancing, volunteering, or pursuing a hobby-turned-business, the goal is often to maintain a sense of purpose while enjoying the flexibility that retirement provides. This article explores some of the important considerations to help make this lifestyle work for you.

Think about when you want to make work optional

There’s no set age to stop working; it will depend on your health, work options, finances, and personal circumstances.

Are you looking at making work optional in ten years, two to five years, or next year? If you have a partner, when will they stop working? Knowing how much time you have makes the planning process easier.

Discuss your priorities with your partner a colleague or friend. If you need professional advice to determine your timeline toward an optional work lifestyle, our financial advisers can assist.

Consider your lifestyle and priorities

Set your priorities

Making work optional requires a clear understanding of your financial situation and what you want your life to look like during this period.

Consider:

• your living costs
• social life and recreation
• staying active and healthy
• volunteering or community participation
• planning for changing health needs or aged care
• supporting your family, children or grandchildren (if any)

Keep working, reduce hours or retrain

Continuing to earn an income, even part-time, can help maintain a sense of purpose and make your savings last longer. If you decide to keep working, options include:

• Job Switch — explore options to retrain or seek part-time work
• Transition to retirement — if you’ve reached your preservation age, you can use some of, and keep contributing to your super while working
• Work Bonus — if you get the Age Pension, you can earn up to $300 per fortnight from work before your pension payment reduces.

Plan where you will live

If you own your home:

• If you still have a mortgage, you could use some of your super (when available) to pay it off.
• Consider downsizing to free up money. You could pay off your mortgage, support your lifestyle, or relocate to be closer to family or services. Before going ahead, check the tax impact and whether it will affect your government benefits.

If you’re renting:

• You may be eligible for an extra payment if you rent and get payments from Centrelink, like the Age Pension. To find out more, see rent assistance on the Services Australia website.

Work out your income and living costs

How much money you’ll need for living costs, once moving to an optional work lifestyle, depends on your priorities and what you can afford.

For many people, their income will be a combination of superannuation and the Age Pension. If you don’t have a large super balance, you may be more reliant on the age pension. If you do have a larger super balance, think about how and when to withdraw it. You may also have extra savings or investments that can be used to fund living costs.

Work out your living costs

• Housing — rent or mortgage, rates, home and contents insurance, maintenance
• Utilities — electricity, gas, water, phone, internet, streaming services
• Food — fresh food, groceries, takeaway, dining out
• Clothing and household goods — clothing, personal care, furniture, household appliances
• Health and leisure — health insurance, health care, social activities, fitness, holidays, gifts
• Transport — car registration, insurance and running costs, public transport

As a rule of thumb, try allowing for two thirds of your current living costs. This is a useful guide, that assumes reduced costs for work and that you’ve paid off your mortgage.

Your spending may be higher when you first retire. For example, if you plan to travel or update your home. You may also need to allow more *income to be spent on healthcare as you get older.

Get your super income

You access funds within your super upon retirement or once you reach your ‘preservation age’. Which is between 55 and 60, depending on when you were born.

When you are eligible to withdraw your super, your main options are:

• an account-based pension
• an annuity
• a lump sum
• or a combination of these

You could also consider a transition to retirement strategy. This provides the option for individuals to use some of, and keep contributing to, your super while working.

Claim government benefits

From age 67 (or earlier, if born before 1957), you may be eligible for government benefits such as:

• Age Pension
• Pensioner concessions
• Health care benefits
• Tax offsets

As mentioned previously, if you decide that you want to continue to work while also receiving the Age Pension, you can earn up to $300 per fortnight from work before your pension payment reduces.

Add in savings and investments

If you have money in savings, you could use this to top up your retirement income, which will aid in making work optional for you.

If you have investments like shares or an investment property(s), think about whether to keep or sell. Check the costs, tax impact and whether it will affect your government benefits.

Seek professional advice

At The Investment Collective, our financial advisers are here to help you build a clear plan tailored to your lifestyle, goals, and financial situation. We understand that every step counts, whether it’s deciding when to reduce work hours, accessing superannuation, or maximising government benefits.

If there is anything in particular you would like to discuss, please don’t hesitate to contact our team.

Retirement is filled with opportunities and choices. There’s the time to travel more, work on long-delayed personal projects or volunteer your help to worthwhile causes.

You also have a host of choices to make when it comes to funding your new life away from paid work. Here are four different retirement income options that your adviser will discuss if you or someone you know is approaching retirement. ⁱ

Account-Based Pension

An account-based pension (ABP) using your superannuation is one of the most common retirement income options. The amount you receive depends on the balance of your account and the drawdown rate you choose, subject to the minimum pension requirements set by the government.

Some considerations:

• Tax benefits – Investment earnings, capital gains and withdrawals are tax-free, unless you have an untaxed component within your super.
• Payment flexibility – Subject to pension minimums, most super funds allow you to adjust the payment amount and frequency, and even make partial or full lump-sum withdrawals if needed. You can also return to work and continue to receive a pension.
• Longevity and market risks – You might outlive your account balance, especially if your withdrawals are high or your investment returns are poor.

Transition to retirement

A transition to retirement (TTR) strategy allows access to some of your superannuation while still working if you have reached age 60 (based on current rules). ⁱⁱ

Some considerations:

• Flexible work options – You can reduce your working hours and supplement your income from your super.
• Limits on pension rates – Like an ABP, there is a minimum annual pension rate. However, there is also a maximum annual withdrawal of 10 per cent of your TTR account balance.
• Reduced retirement savings – Drawing on your superannuation while still working means your retirement savings might grow more slowly.

Annuities

An annuity is a financial product that provides a guaranteed income for a specified period or for the rest of your life. There are several types of annuities, including fixed, variable, and indexed annuities. You can purchase annuities or lifetime income streams using your superannuation.

Some considerations:

• Predictable income – Provides a stable income stream, which can be reassuring for financial stability and provide an income for as long as you live.
• Lack of flexibility – Once you purchase an annuity, the terms are generally fixed, and you cannot alter the income amount. There is a restriction on capital withdrawals or in some instances no access to capital at all.
• Inflation risk – Fixed non-inflation-linked annuities may not keep pace with inflation unless specifically indexed to inflation.

Innovative retirement income stream

An Innovative Retirement Income Stream (IRIS) is provided by a newer range of products. These were introduced after changes to regulations designed to deliver more certainty to retirement income by paying a pension for life without running out of funds.

Some considerations:

• Age Pension benefits – Centrelink only counts 60 per cent of the pension payments received as assessable income and only 60 per cent of the purchase price of the product counts as an assessable asset until age 84 when it is reduced.
• Certainty – Some IRIS products offer a stable guaranteed income stream, providing financial security.
• No minimum requirements – IRIS products do not require an annual minimum amount, instead just requiring at least one annual payment.
• Complexity – Features vary widely between different IRIS products and may involve complex terms or conditions.

Next steps

Receiving expert financial advice can help retirees to understand the various funding options available to them and whether they align with their lifestyle goals for retirement.

Consulting with your financial adviser can help you understand whether these options suit your personal needs and how they might affect your retirement income. If you know a friend or family member who could benefit from expert retirement planning advice, please contact us so we can assist in structuring a plan to fund the retirement lifestyle they have worked so hard to achieve.

Sources

 i Planning to retire | Australian Taxation Office (ato.gov.au)

ii Transition to retirement | Australian Taxation Office (ato.gov.au)

If you’re planning for retirement, you’re probably wondering if you’ll have enough saved to give up work and retire comfortably, especially with the rising cost of living affecting basic expenses like energy, insurance, food, and healthcare.

Fortunately, there is already a guide available to help you plan. The Association of Superannuation Funds in Australia (ASFA) updates its Retirement Standard annually, offering a breakdown of expenses for two lifestyles: modest and comfortable. ⁱ

Based on our average life expectancy – for women it is just over 85 years and men 81 – if you are about to retire at age 67, you will have between 14 and 18 years in retirement, on average, depending on your gender. ⁱⁱ

ASFA found that a couple needs $46,944 a year to live a modest lifestyle and $72,148 to live a comfortable lifestyle. That’s equal to $902 a week and $1,387, respectively. The figure is, of course, lower for a single person—$32,666 for a modest lifestyle ($628 a week) or $51,278 ($986) for a comfortable lifestyle. ⁱⁱⁱ

What does that add up to? ASFA estimates that, for a modest lifestyle, a single person or a couple would need savings of $100,000 at retirement age. For a comfortable lifestyle, a single person would require $595,000 and a couple would need at least $690,000 at retirement age. ^iv

A modest lifestyle means being able to afford everyday expenses such as basic health insurance, communication, clothing, and household goods but not going overboard. The difference between a modest and a comfortable lifestyle can be significant. For example, there is no room in a modest budget to update a kitchen or a bathroom; similarly overseas holidays are not an option.

The rule of thumb for a comfortable retirement is an estimated 70 per cent of your current annual income. ^v (The reason you need less is that you no longer need to commute to work, and you do not need to buy work clothes.)

Building your nest egg

So how can you build up a sufficient nest egg to provide for a comfortable life in retirement? There are three main sources: superannuation, pension, and investments/savings. Superannuation has the key advantage, due to the money in your pension being tax free in retirement.

Your superannuation pension can be augmented with the government’s Aged Pension either from the moment you retire or later when your original nest egg diminishes.

Your income and assets will be considered if you apply for the Age Pension, however, even if you receive a pension from your super fund, you may still be eligible for a part Age Pension. You may also be eligible for rent assistance and a Health Care Card, which provides concessions on medicines. ^vi

We understand that building wealth leading into retirement can be challenging. Our financial advisers can work with you to create a plan that will align with your goals and help grow your nest egg leading into retirement.

Money keeps growing

It’s also important to remember that the amount you accumulate up to retirement will still be generating an income, whether its rentals from investment properties or merely the growth in the value of your share investments and the accumulation of money from any dividends paid.

You can also continue to add to your superannuation by, for instance, selling your family home and downsizing, if you have lived in the home for more than 10 years.

If you are single, $300,000 can go into your super when you downsize and $600,000 if you are a couple. This figure is independent of any other superannuation caps. ^vii

Planning for a good life in retirement often requires just that – planning. If you would like to discuss how retirement will work for you, contact our financial advisers. Our team can discuss strategies and create a plan to help grow your wealth and build towards a fulfilling retirement.

Sources

i Retirement Standard – Association of Superannuation Funds of Australia 

ii Life expectancy, 2020 – 2022 | Australian Bureau of Statistics (abs.gov.au) 

iii https://www.superannuation.asn.au/media-release/retiree-budgets-continue-to-face-significant-cost-pressures

iv https://www.superannuation.asn.au/resources/retirement-standard/

v https://www.gesb.wa.gov.au/members/retirement/how-retirement-works/cost-of-living-in-retirement

vi Assets test for Age Pension – Age Pension – Services Australia

vii Downsizer super contributions | Australian Taxation Office (ato.gov.au)