After a life of working hard and earning your way, there comes a time when it all starts to slow down.
For many, retirement living is the icing on top of their life’s cake. It’s a time where you can throw off the shackles of the 9 to 5 and begin your life of relaxing, enjoying moments with family or friends and having a good time.
However, what should you be doing to prepare prior to retiring? Here are our quick tips.
Know your designated retirement age
Every country has its own designated retirement age (DRA). To make it all the trickier, these often change depending on the current government’s plans.
For example, in Australia the age you can retire will likely be 65, depending on when you were born. However, within two years this will have risen to 65.5, with plans to continue increasing it every two years following that.
It’s likely that within the next decade or so the age will be 70 – which is much more in line with how healthy modern-aged people actually are, and how long they are likely to be able to work for.
Maybe keep a lid on your excitement until you’re absolutely certain of when you can actually retire.
Plan your finances
After you’ve made it this far, there’s a good chance you already have a decent handle on how to plan your finances. However, without the steady, reliable income of a working life, things will likely change for you and your budgets.
It will be beneficial for you to do a number of important things:
- Figure out an estimate of how much you’ll need per year to live a comfortable retirement
- Investigate how much the government’s Aged Pension will give you
- Get ready to access your super
The first and last points are perhaps the most important, especially if you’ve been saving for retirement your whole working life. An Aged Pension is a back up if you need extra to survive, but to be comfortable you’ll most likely be using your super.
Still need more?
Depending on how old you are, and when you plan to retire, you could keep putting money into your superannuation between now and your retirement. In fact, if you started late, or haven’t put much in throughout your life beyond the guaranteed employer contributions, it would be wise to give it one last hurrah before you retire. You can top up your Super with one-off after-tax contributions. How much you can contribute to your super before having to pay extra tax depends on your age at the end of the financial year. We recommend you visit the ATO website to find out more about contributions caps that may be applicable to you.
Get ready to retire
The Australian superannuation Preservation Age is actually earlier than the DRA, which means you could technically retire a few years early if you have saved enough. The Preservation Age for those born before July 1, 1960 is 55. For those born after July 1, 1960, it increases one year every year up to a maximum of 60. For example, if you were born before July 1, 1961, the preservation age would be 56. However, you will only have access to government retirement benefits (assuming you meet the eligibility requirements) once you reach your DRA.
Once you reach the age when you decide to retire, be it slightly early or at the DRA, you will need to get in contact with your super provider and claim your fund.
There are two ways to go about doing this:
- Regular payments: If you would prefer the stability of a regular pay cycle, you could open up a retirement income account. Once set up, your life’s super balance will be paid to you on a regular basis, much like if you were still working. You can also use this account to top up your Aged Pension, if you have one.
- Lump sum: For those who are skilled at financial planning and careful spending, a lump sum payment might be preferable. This is where your entire balance is transferred to you, and you are free to do with it as you please. There will be forms you have to fill out, but this is a great method for those who want to be rid of the pay cycle, and have some flexibility in their retirement spending.
Are you prepared for retirement?