Everything you need to know before making the decision to retire – or not

Thinking about retiring in the next 30 years? You are part of a very big cohort.

In 2021 there were 3.9 million retirees, with another 500,000 planning to retire in the next five years. For the 20 years ending 2031, over-65s are expected to increase by 85 per cent to 5.7 million. Over-75s will increase by 101 per cent to 2.8 million people.

Increasing life expectancies mean growing pressure on the welfare budget, which is still under pressure from the effects of the 2008 global financial crisis and the COVID pandemic.

That’s the bad news.

The good news is that accumulating wealth for retirement, and then keeping it secure after retirement, is still possible for those who make the effort.

Retirement can be a time of freedom – freedom from debt, freedom from the demands of children and the workplace. It should also be a time of discovery when you are free to explore the things you have dreamt about.

But it will be a time of challenges as well. Most retirees have only two sources of income – their own portfolio, usually in superannuation, and welfare, usually the Age Pension.

To get the returns you need for a long life, you need to invest in growth assets such as shares. These, by their nature, are volatile. This means you need to be able to cope when the share market has a big fall now and then.

Furthermore, the continual changes to superannuation and the Age Pension system mean ongoing vigilance. To this heady mix add estate planning, responsibilities for ageing parents, and your own ageing.

Like all journeys, it requires planning and preparation. There will be obstacles and unexpected events. But, if you plan for contingencies, persist and think resourcefully, the journey will probably be a successful one.

Let’s reduce it to a few facts.

Are you prepared?

One key factor that can influence retirement is the level of preparation. Those who prepare for retirement are generally happier and more successful in their post-retirement years than those who do not.

Another critical aspect of retirement preparation is making lifestyle adjustments.

For example, retirees may need to adjust spending habits, reduce debt or downsize their homes. Making these adjustments early helps to avoid financial stress and improves quality of life.

Lastly, social connections are an essential part of retirement preparation.

Maintaining social connections during retirement can help individuals stay engaged, active and mentally sharp. Studies have shown that individuals with strong social connections are generally happier and more satisfied with their lives than those who are socially isolated. Retirement can be a perfect time to develop new social connections, pursue hobbies or volunteer.

Ask yourself these questions. Do you know how you will occupy your time after you retire? Do you know where you will live? Is your estate planning up to date? Do you have enough money for retirement? Or do you need to design strategies to boost it and to make it last longer? If you are working, is there a possibility of part retiring or reducing your hours?

Answering all those questions can make a massive difference to the money you will have to spend.

Do you understand the maths of money?

Taking advantage of compound interest could be worth hundreds of thousands of dollars to your retirement. The amount you will have in your portfolio when you retire will depend mainly on two things – the rate you can earn and the length of time the money has to grow.

The maths affects you in two ways. If you are building money for retirement, a longer time frame and/or a better rate of return means you don’t need to invest as much to reach your target. Conversely, a longer time frame and/or a greater rate means the same amount invested each year will give you a much higher final balance than if you had a shorter time frame and achieved a lower rate of return.

Think about a person aged 60 who is earning $100,000 a year. They have $500,000 in superannuation and are considering retiring as soon as possible. If they can delay retirement until 65, their super should be worth $800,000 – that’s an increase of 40 per cent. But there’s more – if they can delay that retirement until age 70, their superannuation should be worth $1.2 million. This is the classic example of compound interest at work.

Are you comfortable with investing?

If you are investing for retirement, or are already retired, being educated about investing is critical.

The first fundamental is that every investment decision has advantages and disadvantages.

If you put your money in the bank, it should never fall in value, but the income from it may be relatively small. And there are no tax concessions on the interest.

Those who invest in superannuation move their money to a low tax area, but lose access until they reach preservation age.

If you invest in shares, you can sell part of your holding quickly, and the income may be tax free. However, its value could fall when the market does.

If you invest in real estate, you face repairs, maintenance costs and vacancies. You also have no ability to part-sell – but you would not expect to lose a huge chunk of your capital.

Make sure you understand the pros and cons of every investment decision you intend to make. Don’t invest until you do.

Shares versus property

There is no perfect investment. Each one has its advantages and disadvantages, and the irony is that often the advantage also contributes to the disadvantage.

For example, property has a certain stability about it, and you are unlikely to see it rise or fall 30 per cent in a hurry. However, you can’t sell the back bedroom if you need a bit of money, and it would be impossible to sell a home in a few minutes.

The advantage of shares is their liquidity, which provides great flexibility. 

If you want to sell your shares you just call your broker. The money from the shares you sell will be in your bank account within the week.

Contrast this with the hassles of selling a property.  Phone up three agents, receive a range of prices that may well be 20 per cent apart, then wait till you find a willing and able buyer.

At best you may have the money in your bank account in three months.  

This lack of liquidity can be devastating for retirees. Let’s say you have an investment property worth $800,000 for which you paid $400,000 years ago.

Even with the benefit of the 50 per cent capital gains discount there will still be a taxable gain of $200,000 when you sell. This will take a huge chunk out of the proceeds.

Contrast this with a couple who have the bulk of their investments in shares. They can sell a few now and then over the years, and need pay no capital gains tax at all because they can time the sales to stay in the zero-tax bracket.

An easy option for the novice is to invest in quality managed funds, where the decisions are made by fund managers.

Alternatively, buy an index tracker fund. Simple.

A reasonable expectation of return is 9 per cent per annum long term. Provided you don’t get spooked when the market goes through one of its normal gyrations, shares are the simplest investment of all to manage. 

You won’t have to go to court to evict recalcitrant tenants, and your budget won’t be battered by bills for land tax, rates or repairs.

Do you understand the tax rules for retirees?

Income tax is often not an issue for many retirees because much of their money is held in concessionally taxed superannuation and they draw an income from that which is tax free.

Furthermore, thanks to a range of offsets, tax payable is often zero. However, there are two taxes that are not well understood.

The first is the death tax on superannuation. This is levied at 17 per cent (15 per cent plus Medicare Levy) on the taxable component of your superannuation fund left to a non-dependent. For these purposes, a partner is always dependent.

A fund member can avoid the death tax by cashing the entire superannuation at a time of their choosing and invest it outside the superannuation system.

Alternatively, give a trusted friend or relation an enduring power of attorney that will not be invalidated if the member loses capacity. Then, if death appears imminent, the attorney could withdraw the superannuation balance tax free and deposit it in the member’s bank account.

Another way to reduce the death tax is by way of a cash out and recontribution strategy. This involves making tax-free withdrawals from your fund once you have turned 60. Provided you are still eligible to contribute to superannuation you can recontribute the money back to the fund. Because this recontribution comes from after-tax dollars, there is no entry tax. It stays exclusively in the tax-free component of the fund.

The other tax is capital gains tax (CGT). The good news here is that death does not trigger CGT. It passes the liability to the beneficiaries who will only pay CGT if and when they dispose of the bequeathed assets. This is an area to take expert advice because certain beneficiaries may wish to keep the asset, and some may wish to sell.

It may be better to liquidate an asset prior to death and leave the proceeds to the beneficiaries in cash.

Do you understand the Age Pension rules?

A major finding of the Retirement Income Review was that retirees found the interaction between tax, social security and aged care, complex and confusing.

This is an area where you may need advice. For example, if one member of a couple is younger than the other, the older partner may get a larger Age Pension if all superannuation is held in the name of the younger partner. This is because superannuation does not count until the member reaches pensionable age.

There are products now that can give you a guaranteed income for life and also social security advantages because only 60 per cent of the money you invest in them is counted for the assets test. These products are continually evolving so you need good advice to determine if one is right for you.

There are also many tricks in the system. For example, the family home does not count for the assets test but items such as furniture are assessed at second-hand market value. Many retirees value their furniture at replacement value. This could cause a huge reduction in their pension if they are asset tested.

If you have an investment property with a loan, that loan will be deducted from the asset value for assets test purposes only if the loan is secured by that property. Many people secure the investment property against the family home. In that case, the investment property is assessed as if it was debt free. This could cause a massive decrease in pension or even loss of the pension.

Do you understand the keys to a long healthy retirement?

The main factors that determine life expectancy are exercise, diet, having a partner, and having a sense of purpose.

Yes, there are parts of the world known as the Blue Zones where people regularly live to 100. They include the islands of Okinawa, Japan; Sardinia, Italy; Ikaria, Greece; the Nicoya province of Costa Rica; and the Seventh-day Adventists in Loma Linda, California.

These communities all consume around two to three pieces of fruit a day and three to five servings of vegetables. The disturbing fact is that less than 10 per cent of the modern world eat this amount of fruit and vegetables daily. Those who do have the lowest rates of heart disease and cancer in their communities.

Furthermore, most of the Blue Zones people enjoy a glass of wine, but not to excess.

Remember, it’s never too late to start proper planning – the benefits are massive.

This is just a glimpse of the information needed for fulfilling retirement. There’s much more detail in my new book, Retirement Made Simple, available from my website www.noelwhittaker.com.au

Have you retired? How did you know it was time? Did you feel sufficiently prepared?

Also read: How to cope with retirement plan interruptions

Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without considering your objectives, financial situation or needs. It has been prepared with due care, but no guarantees are provided for the ongoing accuracy or relevance. Before deciding based on this information, you should consider its appropriateness regarding your own circumstances. You should seek professional advice from a financial planner, lawyer, or tax agent in relation to any aspects that affect your financial and legal circumstances.

Noel Whittaker
Noel Whittakerhttps://www.noelwhittaker.com.au/about/about-noel/
International bestselling author, finance and investment expert, radio broadcaster, newspaper columnist and public speaker, Noel Whittaker is one of the world’s foremost authorities on personal finance. He is currently an Adjunct Professor and Executive-in-Residence with the Queensland University of Technology, as well as a committee member advising the Australian Securities and Investment Commission.


  1. Could someone clarify for me regarding the draw down on your super soon to be 5% for over 65`s,will that draw done money be seen as income stream by Centrelink and therefore reducing your age pension payment

  2. Can a 77 year old give an enduring power of attorney to someone, to withdraw the superannuation funds in the person’s account & then redeposit the funds into the account to avoid death tax on unpreserved money?

  3. I have always thought that money would be the biggest issue in retirement but it turns out (for me anyway) that that has been the least of my worries and having a purpose is the biggest issue. Its good advice to say be prepared but knowing that one should be prepared and actually being prepared are slightly different. I was in a job that I didn’t enjoy so I resigned and then realised that if I changed my super to pension mode my income would be about the same and I don’t regret resigning from the stressful job, but I do worry about the future and what I am supposed to be doing!

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