Making the transition to retirement
Long gone is the tradition when people were working one day and retired the next. Many Australians now choose to transition to retirement by reducing their hours at work. This enables them to experience having more time on their hands as well as adjusting their lifestyle to take in consideration a lower income.
Transition to Retirement
Transitioning to retirement really is a two-stage process, which is as much about dealing with the emotional aspects of leaving the workforce as it is the financial. It’s not as simple as making the decision and getting on with an entirely new life. It requires planning, which is best done in conjunction with your nearest and dearest.
Your planning should start by asking yourself if you’re really ready to retire. Some of the questions that will test your readiness are:
- Have I achieved my goals in the workplace?
- Do I have other employment avenues I wish to explore?
- Am I ready to have more time on my hands?
- What type of retirement am I hoping to achieve?
- How long do I need my retirement funding to last?
- Do I have contingency plans should my money run out?
- Have I shared my plans with my significant others?
- Am I organised enough for a lifetime of Saturdays?
The reality for many Australians is that work will continue to be part of their lives for longer than previous generations. From 1 July 2017, the Age Pension eligibility age is increasing from 65 to 67, by 2023. And with legislation in the pipeline that could increase this to 70 by 2035, the need to re-evaluate your ability to work longer increases.
Working part-time is certainly something that many in the transition to retirement phase consider. Asking an employer if this can be accommodated within a current role is obviously the first step, but if this isn't possible, then other avenues, such as changing your job, working from home or starting a business will need to be explored.
Of course, reduced working hours usually results in less income and utilising a transition to retirement strategy is how many people cover this shortfall. Once you have reached preservation age (the age at which you are entitled to access your superannuation), such a strategy enables you to access your superannuation savings to commence an income stream. This is commonly done through an allocated pension or by purchasing an annuity.
One of the major benefits of a transition to retirement strategy is that you can continue to salary sacrifice into superannuation, which means your super balance continues to grow while you may be able to reduce the amount of tax paid.
Having a lower income means that some larger changes may have to be made to your lifestyle. This may mean downsizing, closely examining your household budget and accepting that large purchases and overseas holidays will become less frequent than you have perhaps previously enjoyed.
As this is one of the biggest decisions you will make, it shouldn’t be taken lightly and our quick ‘Are you ready to retire?’ quiz will help you to identify the areas of your retirement plan that need attention before you start the transition.
Do you know if you qualify for an Age Pension? Find out with our RetirePlanner tool.
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