It’s a question that drives a lot of conversation,so today I want to take a deeper look at the things to consider if you want to retire before you reach age pension age but don’t have a big superannuation balance.
A comfortable retirement can take many forms,and can be achieved even with less than optimal superannuation.Leanne Hartley
The Association of Superannuation Funds says and a single person $595,000 plus own their own home outright to live in comfort in retirement. For most retiring Australians,that’s not an easy proposition.
In fact,with a national median super balance of closer to $212,000 for men and $202,000 for women at the age of 65,understanding the levers you have at this point of life becomes seriously important.
Build your balance sheet
We have to start with the hardest task,the one thing that most people detest doing – talking the truth about their money and what it will afford them. And,really considering how much they are willing to tighten their belts over the years ahead to ‘go early’ into retirement.
There are two steps to this process. Take a moment to build your own personal balance sheet. Be brutally honest with yourself. Understand your assets and your liabilities first.
How much is your house worth? How much is in your super fund? And how much is in your partner’s super fund,knowing that in retirement couples usually work as a ‘household’ rather than as individuals to make considerable cost-of-living savings. Have you got any income generating assets or other assets outside super?
What debt are you carrying? How much is still owing,and how long will it take you to pay that down or,how much do you need to find to clear that debt?
Create your budgets
Next,we need to talk about your budgets,pre- and post-retirement. That means mapping out your core living expenses and your lifestyle expenses today and in the future life you want to live in retirement.
Save up little holidays,or a caravan that can make holidaying affordable and easy. And get out there and enjoy your life.
Then you’ll need to look at your income sources today,and in retirement too. Once you have your budget,ask yourself some tough questions. Are you living within your means or do you need to adjust your spending?
Are you saving,or paying down debt with your income today that will not have to be paid off after retirement?
Assess your income generating potential from super
Once you understand your current financial position and your budgets,you must project how much income you think you’ll be able to generate from money you have in superannuation,and how much investment risk you are prepared to take on to generate this income.
A simple way to look at it is that a couple,both with median super balances might have about $414,000 between them in super,which at a 7 per cent return might be able to generate $28,980 in annual income without eating into the capital. We know that’s not enough to live on,but it’s a start – and it can form the first part of our picture.
Understand your pension eligibility
The second part of your income picture comes from learning about the age pension. The age pension is not a dirty word. More than 60 per cent of Australians over 65 draw on the age pension.
It’s a powerful and often essential layer of income for retirees,but it can’t be accessed until the age of 67 and can only be accessed if you pass both the assets and the income test,which many people with a lower super balance and limited complexity pass.
It’s important to understand the age pension early if you’re aiming to access it as it could affect some of the strategic decisions you make about when to sell your home and how much cash to free up for income generating via super.
If you’re going to be eligible for the full pension at 67,you can expect to gain an income of almost $43,000 for a couple or $29,000 for a single person in income,when you reach pension age.
Reshuffle your super
Often people find themselves going into retirement with a larger than necessary family home and a smaller super balance.
Their motivation to stay in that big family home can shift – knowing that by buying a smaller home and freeing up some funds for paying down their mortgage and/or investing within the tax-free environment of super – or both – they can feel a lot more financial confidence.
Six years ago,the government introduced,a tax concession allowing people over 55 who have lived in their homes for ten years to sell them and put up to $300,000 each into superannuation tax-free.
It’s a smart way to get money into superannuation in the years close to retirement,boosting your future income generating assets to a much healthier level,and it’s become more and more common for people to do this financial reshuffle as they traverse retirement.
Think about our couple. If they were to sell their home and buy a smaller one and free up $300,000 between them,their super balance could rise to $714,000 – something they might never have thought possible.
Explore your other income sources
A single 65-year-old planning to retire this year needs to cover their living expenses for two years until their pension kicks in. Their pension,along with their superannuation,will provide an annual income of $52,000.
To maintain this income without using up their savings,they would need around $342,000 in investments earning a steady 7 per cent return each year. But they still need to figure out how to cover their expenses before the pension kicks in at 67.
Will you allocate this from your capital and impact future earnings or build up some specific savings? Or will you work part-time in the first years of retirement to make up the gap?
If you own your own home,are in good health and live within your means,you might have a few options even if you do have a smaller super balance. It’s worth making the effort to understand them.
Work for extra funds
Not all work is the same. Once you retire,you can work in a lower commitment,lower structured manner if you choose,to make enough money for some little joys in life. Save up little holidays,or a caravan that can make holidaying affordable and easy. And get out there and enjoy your life.
A retired school teacher is revealing his secret to retirement success and how he earns hundreds of dollars each week.
Once you’ve taken all these steps please,get some financial advice to ensure you have thought through everything and considered all the opportunities and the risks.
Bec Wilson is the author of the bestseller,How to Have an Epic Retirement. She writes a weekly newsletter at and she is the host of the podcast.
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