Are you retire fit?
Handy five-point checklist
Running enthusiasts take marathons seriously. They establish fitness and running routines months in advance, measure their progress to ensure they have all the necessities in place for the big day – and the gruelling race to follow.
Avid gardeners prepare in similar ways for the changes of season, planting spring bulbs in autumn, laying mulch in spring in preparation for dry spells in summer.
So why do many of us think we can simply lurch into retirement, without a lot of planning, research or forethought? It begs the question. Are you retire fit?
It’s true that, for about 40% of retirees, the decision to leave work is due to redundancy, ill health or caregiving needs, so this can occur without warning. However there’s no real excuse for the other 60% if they choose not to be well prepared for life after full-time work. But what does being retirement fit mean in a more practical sense?
Becoming retirement fit is a significant process, but it can be more simply understood through the following five separate – but equally important – stages:
- Choosing your exit time and strategy
- Having a clear idea of your needs and income sources
- Understanding the basics of entitlements
- Being aware of superannuation strategies
- Setting deadlines
Let’s make it practical …
Here’s a brief rundown of the things to consider for each of these five stages. When you’ve read through this list, rank your progress on a scale of 1-10 (1 = poor, 10 = excellent). Then add each of the five rankings for a score out of a potential 50. If you’re below 35, that might be a hint that you have work to do!
1. Choosing your exit time and strategy
No one can voluntarily leave full time work unless they have decided on the departure date and whether they will fully retire, or transition by working less and starting to live on a retirement income stream. The setting of a date can be challenging as it may depend upon your potential retirement income, how tired you are of working, your health, your partners’ plans or perhaps, your employers intentions. Many people put off discussing their eventual retirement with their boss as they don’t want to be ‘got rid of’. It seems this is erroneous thinking, with most employers now very supportive of their workers long-term retirement needs and the best ways they can support them to manage their finances and transitions. The first step is to talk to those around you to see if there is a timeframe that suits your family and your employer, one that coincides with the point at which you believe you will have sufficient retirement income. Choosing an exit strategy is simply putting more flesh on the bones:
- Should you go part time?
- Should you take long service leave?
- Should you consider a Transition-to-Retirement strategy?
2. Having a clear idea of your needs and income sources
Or, in simpler terms, how will you pay yourself in retirement? For nearly 60% of Australians, entering retirement will mean at least a part-Age Pension payment, often supplemented with superannuation drawdowns and some private savings. The first, obvious, step to understanding your income needs is to know what you are currently spending. This gives you a baseline, as most people in retirement will spend less over the years. It’s helpful to also have an idea if you expect some ‘big ticket’ expenses in the early days. This might mean replacing a work car with one of your own, renovations, travel, or perhaps even paying down a mortgage. Projecting your likely spending, combined with an Age Pension and/or superannuation drawdowns is a really important calculation to make in order to decide if you are able to retire soon or not. If you don’t know where to start, the Retirement Essentials Retirement Forecaster has been designed to help you make these calculations.
3. Understanding the basics of entitlements
As mentioned above, most people start retirement on a full or part Age Pension. Even those that start out self funded often find themselves relying on at least a part Age Pension as years go by. In fact 80% of Australians aged 80 or older are on an Age Pension. So now is a good time to be aware of Age Pension payment rates and the main rules (income and assets thresholds) that are used to assess your eligibility. There are many other aspects of entitlement that then swing into play, including supplements, rent relief, Pension Concession Cards and other support or benefits. Counting yourself in or out of pension eligibility is a critical early step in retirement planning.
4. Being aware of superannuation strategies
Superannuation is something that many of us don’t pay much attention to while it is accumulating through the mandatory Super Guarantee (which will move from 10.5% to 11% on 1 July). But this is a mistake, as there are many cost-effective ways of increasing your super before you retire, allowing your savings to compound and result in a higher nest egg at retirement age. So if you are still working it makes a lot of sense to better understand ways of saving faster so that you fast-track your retirement income. If you are close to retirement, there are another range of superannuation options which can also maximise your savings. These include many of the rules we covered last week. If you can say, hand-on-heart, that you thoroughly understand all the rules relating to both the accumulation and decumulation phases of super, then well done you. But if you don’t, a tailored superannuation discussion with one of Retirement Essentials experienced advisers could further maximise your savings.
5. Setting deadlines
The job’s not done yet. Having an achievable, realistic schedule will remove a lot of the stress from this major life event and ensure that you don’t miss vital and costly deadlines. For instance, there is no backpay on the Age Pension! So it’s important you get your application in as soon as you are allowed (13 weeks before turning Age Pension age), so that you don’t lose a dollar of income.. It will also mean earliest possible access to concession cards, so applying sooner rather than later is key to your income maximisation.
It’s not all about pension entitlements, though. There are many rules, terms and conditions based upon a calendar year, a financial year or your date of birth (which will affect both your pension eligibility age and Preservation Age). It is this information you will need to include in your own ‘retirement diary’ so that you are ticking the boxes on time and making decisions in a calm and measured manner.
In fact, that’s the main point of being retirement fit. As with the marathon runner, you don’t want to fall over from lack of preparation. It’s so much better to calmly glide past the winner’s tape and celebrate the win!
How did you go with your self- assessment?
Are you happy that you’ve considered all the necessary actions to move to retirement?
Or do you think that there are better ways to prepare?
Please advise when one is eligible for a pension after being issued with permanent residence.
Hi Stan, thank you for your question! You need to be an Australian citizen or permanent resident for a minimum of 10 years and 5 of those 10 years need to be spent consecutively living in Australia.
boarder line self-funded retirees receive no concessions on utility bills or anything else but struggle to live from their meagure savings.
Why is this so when only their frugal lifestyles have allowed them to have some savings at retirement age?
Kathleen,
I reckon you are spot on and there would be many people who are in this situation. We seem to be in a category where there is no help at all until you do hit the 67 years old mark and have some pension eligibility with its other benefits. No support from anywhere if you are one who is in this situation.
We are also in this situation as self funded retirees, and thought we weren’t eligible for any benefits until one of us turned 67. Recently though, we found out we are eligible for a Low Income Health Card, which has helped a lot with our numerous medical visits and medications. Our only income is from an account based income stream, and the money we draw down each fortnight is not counted as income for this card. They only ‘deem’ income from the total balance of the income stream account, which is way less than what we are actually drawing down, so we are eligible for the Health Card. Might be worth a look…
I’ve heard that if you put your application in for the pension and going to retire but submit while still working you can be knocked back and have to wait another 3 months
Hi Beth, thanks for sharing your concern with us! When you apply for the Age Pension Centrelink assess your eligibility as of the day you lodge your claim. Therefore yes if the income you are earning from your job puts you over the applicable threshold, your claim would be declined even if you retired shortly after lodgement. There is no set amount of time you must wait before re-applying though, as soon as you become eligible you can lodge another claim.
Pension should be universal after working 40 year and paying my taxes I am
Not entitled to a government pension. Very unfair
I agree with Isabelle Almond. The Centrelink system is so complex and cumbersome, especially for those who have some savings and/or a modest employment income. There is no way to have a peaceful retirement if your having to spend your life filling in forms and dealing with bureaucracy very few weeks or months. It seems, if you’ve worked all your life, paid your taxes and saved a bit you are penalised at the end of it. Most other OECD nations have universal plans, and it doesn’t seem to send them broke.
I never understand the pension entitlement attitude. When we are retired I estimate we will be on a self funded pension of about $70000 a year for 25 years. If we want to live larger we can pull more down. If we use up our own resources, we always have the pension to fall back on to. So initially in retirement when more active we will have a reasonable cash flow to do the extra things. One of my bigger concerns is planning so as to be able to have access to quality health care in my latter years. Although I do believe the whole system would be easier if the pension was universal, and any income above the pension amount was taxed at say 20%. It would be easier to be flexible with work arrangements if you want to earn a little more income.
I am of pension age but my wife is not and still works. If I am eligible for say $200 per fortnight, would this amount be halved as my wife is still working?
Hi Malcolm, thanks for seeking clarity! Technically what you have said is true in that if your partner is under Age Pension age then you are only eligible for 50% of the couple’s Age Pension. However speaking in more literal terms, most calculators you use (including ours) will know this and so you can trust that whatever figure you are shown is what you personally will receive. For example no one with a younger partner should ever see that they are eligible for $1,600 per fortnight, they would only ever see a maximum of $800 as that is their entitlement until the partner turns of age.
What documents do you need to submit when applying for Aged pension. How many years of bank statements do you need? Or is current bank statement with balance amount be enough
Hi Tseten, thank you for your comment! The documents you will require can vary from one person to the next as it depends on your personal income/assets. If you’d like a one on one session to discuss you situation I recommend booking a consultation with one of our specialists HERE. Regarding bank statements, no you do not have to provide a year’s worth, Centrelink will want a statement that is no older then 4 weeks covering at least 30 days worth of history.