Money mistakes to avoid in your 60s

Milestone birthdays are definitely ones to celebrate. Hopefully you are at a stage where any ‘have tos’ of work, mortgage and parenting are reducing and the ‘get tos’ of travel, social events and fun hobbies are on the increase. Yes, there are always responsibilities whatever your age, but research suggests that those aged 60 and over have higher levels of contentment than younger generations.

Turning 60 is also a pivotal point in your retirement journey. As is turning 66, the year before you can apply for an Age Pension. In this first of a two-part series, we run through the key decisions you will need to make. Forward planning can be the critical success factor for stable retirement income. Knowing what’s ahead as you reach 60 will enable you to use the many rules of retirement income to your own best advantage.

Super is only half the story

Often people anticipate 60 because this is the age when they can finally get their hands on their super. But making an early grab for these savings – perhaps in the form of a lump sum withdrawal – is not necessarily the most efficient way to access your money. Nearly two-thirds (63% according to the Australian Institute of Health and Welfare) of Australians aged over 65 receive an Age Pension. This means that there is a high possibility you will as well. 

Tip: Factor it in or count it out. Make knowing your likely eligibility your first step.

What is your optimal retirement age?

Knowing when you wish to retire is important. Not everyone has this luxury with a significant 21% retiring due to ill health, redundancy or care duties. But assuming you are one of the balance who gets to decide, choosing the optimal time to reduce or cease work is important. Assuming that you ‘need to’ retire because you can access super, potentially at age 60, or you reach a perceived retirement age (usually 65) or because the Age Pension might be available (age 67) is lazy thinking. Deliberately calculating your best retirement age is much more useful than reacting to these external triggers. If you enjoy work and it brings a sense of contribution and social interaction, why stop? The ongoing income is not to be sneezed at either. And what of your partner’s situation? What do they want from their later years? Are there any teenage dreams you have yet to pursue? 

Tip: One of the best ways to think about your own retirement timing is to choose someone who is living a great life in their 60s or 70s and ask them how they approached the question of timing.

Accessing your super

The reason that age 60 is such a headline event is because it is also Preservation Age – the age at which you can withdraw money from your super.

But there are a few caveats.

First of all, you need to meet the conditions of release related to your age and intention to retire.

Yes, note the last one – you need to fully retire. If you are not ready to do so, then it is possible that the Transition-to-Retirement strategy will suit you better.

Regardless of which way you might choose to access your super, before doing so it is important to think about how much you have saved, how much you may wish to withdraw and why: 

• Will you use super to fund your retirement? In which case an Account-Based Pension (ABP) or Lifetime Income Stream may be appropriate.  Our Understanding Super consultations can help you to understand your options in this respect. 
• Or will you use these savings to reduce debt? In which case it will help to understand the pros and cons 
• Perhaps your savings will help you meet an urgent need? This might be a health procedure, must-do renovations or replacing a car. 
• Perhaps you want to access super to make a lifestyle change? Or to help a loved one?

Tip: Each and every one of the above reasons to access super will have an affect (either immediately or later) on your overall financial situation. These affects include taxation implications, debt management and Centrelink payments. Modelling how these decisions play out over your longer retirement journey is a smart strategy before you decide.

Think long and hard about work

If you are in your early 60s, you are likely to live to your mid-80s, with a 50% chance of living even longer. Deciding at 60 that you will never work again is a big call. Many people consider transitioning to retirement rather than going from full time work one day to complete retirement the next.  There may be an understandable sense of burnout for those who have been doing the same work for many years. But this doesn’t mean you necessarily want to stop work; you may just want to stop what you are doing now. Income limits for those on the Age Pension have been relaxed somewhat in recent years, so it’s now possible to mix work and retirement if you wish to keep plying your skills.

Tip: Careers counsellors are not just for school age kids. Consulting a professional about how your skills and capabilities offer ways to transition from one career to another is a great investment in your future sense of purpose.

Will you get the Age Pension?

It’s highly likely that you will. Understanding how your super savings will top up Age Pension payments after you turn 67 is the best intelligence you can seek when turning 60. Happily this is one click away on the Retirement Essentials Age Pension Eligibility Calculator. This provides a preview of your likely future income. But don’t stop there. This estimation can be finessed and enhanced if you take into account things like mortgage debt, younger partner work and super status, the structure of your assets and many other aspects of your situation using the Retirement Forecaster.

Tip: Even if you don’t qualify for the Age Pension early in your retirement, it’s probable you will when you are in your 80s. Finding out your eligibility early is smart, keeping an eye on it as the years roll past is even smarter

What about your mortgage?

According to the most recent research from Professor Rachel Ong ViforJ, 47% of those aged 55-64 currently carry a mortgage. As you reach 60 this is something you may wish to tackle. The current higher interest rates may be affecting your ability to use your money for other purposes. The value of your home and the size of your mortgage will inform the ways you can maximise your retirement income. There are also strategies including super downsizer contributions and bring-forward rules which you will need to understand. These questions are addressed in the Your home and your mortgage consultation. And don’t forget that a redraw facility with your mortgage is a very valuable tool. Sometimes paying a mortgage down, rather than out, makes more sense.

Tip: Few people enjoy owing money to others – but jumping in to access super in a lump sum to pay off a mortgage is not necessarily the best use of your hard-earned savings. Seek advice on this decision if you are unsure.

Giving to others

Do you want your money to go to your loved ones when you pass away? Or do you want it tied up in a legal quagmire? If you prefer the first option, then if you haven’t already created a will, now is the time to do so. But giving is about more than bequests. Many retirees give a lot of money while still alive. We have covered many of the commonsense rules on this matter before, but one thing to think about if you are turning 60 is Centrelink gifting rules. These will have an effect on your assessable assets from about five years before you turn 67. Knowing how these rules work should form part of your forward planning.

Tip: Giving while living is both generous and extremely helpful to those who benefit from your largesse. But discussing whether you are making a gift or a loan and any expectations attached is imperative. As is formally recording these agreed rules. ‘Giver’s remorse’ can prove every bit as painful as ‘buyer’s remorse’ if you don’t clearly communicate your terms and conditions. 

What’s your advice for those heading into their 60s?

Or your questions if this is your current life stage?