How to discover your perfect retirement age

Retirement is not just a milestone – it’s a major life transition that requires careful consideration and planning. For many Australians, deciding when to hang up the work boots and embrace the leisure of retirement is a decision that brings both excitement and anxiety. The perfect retirement age is very personal, influenced by financial readiness, health, lifestyle desires and other factors. 

Understanding the legal landscape

In Australia, there is no mandated retirement age, but there are critical ages to consider when planning for retirement. The preservation age is particularly important, as it determines when you can legally access your superannuation funds. 

If you were born from 1 July 1963-30 June 1964, your preservation age is 59. If you were born earlier, you can already use your super. Those born after 30 June 1964 must wait until they turn 60.

You can access your super benefits once you have reached your preservation age and met one of the following conditions of release:

• retiring from the workforce
• beginning a transition-to-retirement income stream or pension. This is a way you can access your super while winding back your working hours
• ceasing an employment arrangement after you reach 60 (even if you get a job with another employer)
• turning 65 (even if you continue working).

Just to confuse matters, your preservation age differs from the Age Pension eligibility age. The Age Pension eligibility age depends on your date of birth. From 1 July 2023, the eligibility age has increased to 67. The preservation age for all Australians is therefore much lower than the Age Pension eligibility age.

Transitioning to retirement

For those not quite ready to leave the workforce, a transition to retirement (TTR) strategy offers some middle ground. This allows individuals who have reached their preservation age to draw an income stream from their super while continuing to work. This strategy can have tax advantages, especially for those aged 60 and over, who pay no tax on their TTR pension payments. However, those between 55 and 59 years of age face taxation at a rate of 15 per cent.

It’s not just about the numbers. A TTR strategy can also provide psychological benefits, easing you into retirement and allowing you to adjust to a new lifestyle gradually.

How much money do you need to retire comfortably?

Determining how much you need for a comfortable retirement is a complex equation. The Association of Superannuation Funds Australia (ASFA) provides quarterly estimates of the expenditure required for a comfortable or modest lifestyle. As of September 2023, for those aged between 65 to 84, the annual budget to live a comfortable lifestyle is $71,723.56 for couples and $50,981.27 for singles. For a modest lifestyle in the same age bracket, the budget is $46,620.05 for couples and $32,417.48 for singles. Similarly, for those aged around 85, the estimated annual budget for a comfortable lifestyle is $65,554.96 for couples and $47,338.04 for singles. For a modest lifestyle, the budget is $42,978.78 for couples and $30,034.80 for singles.

YourLifeChoices’ quarterly Retirement Affordability Index, which separates retirees into six cohorts and is produced with The Australia Institute, has a whole set of spending estimates depending on whether you intend to enjoy a well-off or constrained retirement.

These figures may be daunting, especially considering the pressures of high consumer price inflation. But these are just guidelines, and your personal needs and goals may differ.

Role of planning and advice

Vanguard’s 2023 How Australia Retires study highlights the importance of confidence and planning in retirement readiness. Those with a clear plan and who actively manage their finances tend to be more confident about their retirement prospects. Professional financial advice can significantly affect this confidence, with those receiving advice more likely to feel secure in their ability to fund their retirement.

Conversely, those without professional advice or who rely solely on family and friends for guidance often have less comprehensive retirement plans. This underscores the value of seeking expert advice tailored to your unique circumstances.

The Intergenerational Report 2023 projects increasing life expectancies, which means planning for a longer retirement is more important than ever. Longevity risk – the chance of outliving your savings – is a genuine concern. Many retirees opt to draw down at the legislated minimum rates, often leaving a significant portion of their assets unspent at death.

Finding your perfect retirement age

So, when is the perfect age to retire? The truth is, there’s no one-size-fits-all answer. It’s a deeply personal decision that depends on your financial situation, health, lifestyle preferences and how you envision your retirement years.

Here are some steps to help you find your perfect retirement age:

1. Assess your financial health: Review your superannuation, savings, debts and other financial resources. Consider how these will support your desired lifestyle in retirement.

2. Consider your health: Your physical and mental health can significantly affect when you retire and how you will spend your retirement years.

3. Reflect on your lifestyle goals: What do you want to do in retirement? Travel, pursue hobbies, volunteer? Your goals will influence how much money you’ll need.

4. Seek professional advice: A licensed financial planner can help you navigate the complexities of retirement planning and tailor a strategy to your needs.

5. Plan for the long term: With increasing life expectancies, ensure your retirement plan is sustainable for potentially 20-30 years or more.

6. Stay flexible: Be prepared to adjust your plans as circumstances change. Retirement planning is an ongoing process, not a one-time decision.

Have you found your perfect retirement age, or are you still pondering the decision? Share your thoughts and experiences in the comments section below. 

Also read: Are you missing out on a retirement bonus?