One popular misconception about retirement is that it is a choice that we can all make when we feel like having more spare time. This is not what always happens, however, with most recent ABS statistics on Retirement and Retirement Intentions (2023) revealing that not quite a third of Australians choose to retire because they have reached Age Pension age or are eligible for superannuation (28%). Many people retire far earlier than they intended with 13% doing so due to their own sickness, injury or disability and 7% retire because they were retrenched, dismissed or there is no available work.
Having a health shock is a tough way to exit the workforce. Not everyone is eagerly anticipating the day that they can stop work. Many older Australians really enjoy their work, the associated social networks and the sense of purpose and contribution. And yes, the money can come in handy as well.
This is the case with Pamela who has been working very happily as a teacher’s aide in a beachside suburb of Perth. She’s separated, has no children and has created a happy life in an apartment which is a few minutes from her work, her shopping centre and many friends.
But she recently received a diagnosis of breast cancer and this has forced her to rethink her work plans as well as her retirement goals, assuming she can maintain reasonable health.
She is able to use the public health system for immediate surgery but also wants to have reconstructive surgery for which she plans to use private health insurance. This will cost her around $8000 with some relief from her health fund.
She doesn’t want to retire but feels she may have to.
So she spoke to one of our advice team about booking a consultation after her surgery. In the meantime she wants to explore her options. She is still in the early stages of her diagnosis and feels she doesn’t yet have the headspace to come up with answers. Our team member agreed that more time would be smart for Pamela to confirm her out of pocket health costs and to make sure that her scheduled surgery and general health was her number one priority.
But in the meantime, here are some of the broad thoughts that her adviser raised with Pamela to give her lots of options to think about before she makes an appointment.
Concerns about running out of money too soon
The main financial concern that is stressing Pamela is that she will run out of her savings and end up living on a full Age Pension. She just doesn’t think that this will be sufficient to finish paying her mortgage, a loan on her car and allow her to take an annual holiday. She is also worried that she might make an irreversible decision that will end up costing her money. We suggested Pamela use our free Age Pension Entitlements Calculator as this is a great start for anyone unsure of potential entitlements (even before official Age Pension age). It also helps to know what the Age Pension currently pays, so we shared that link with her as well.
Would a Transition to Retirement (TTR) strategy be appropriate?
Given her above average super savings our team did not believe Pamela would indeed run out of savings. Because she is keen to keep working, even if part time, we shared some information about the Transition to Retirement strategy as this would enable Pamela to access some super, work part time while in recovery and return to more hours if she feels well enough and has the energy. Our Head of Advice, Alison Squire had recently assisted Barry to consider the pros and cons of a TTR, so this provided great information for Pamela as well.
Or is full time retirement a better way to go?
Given her desire to return to work if possible, deciding to retire full time isn’t necessarily the best option. But it’s possible to project her superannuation income streams and Age Pension entitlements across the years, so she can check if retirement is viable, given she is only three years away from qualifying for the Age Pension plus a Pension Concession Card. Her asset levels suggest she would be under the assets test and close on the income test, so exploring her eventual eligibility is definitely worth consideration.
What to do with the mortgage?
And then there is that mortgage, hanging around like a bad smell according to Pamela. Again, she has some options here as being past Preservation Age means that her super could possibly help reduce this debt. Again, modelling this is a smart idea as it may ultimately affect Age Pension entitlements. As the home is a fully exempt asset reducing debt can sometimes be a great strategy.
Pamela sounded a lot happier after she’d had this preliminary chat with our team. She now has some reading to do, using the above links, so that she has a clearer idea of the pros and cons of a Transition to Retirement versus the option of starting an Account-Based Pension and perhaps accessing a small lump sum to reduce her mortgage while she is in recovery.
Above all else, she really wants some time to prioritise her health. She also plans to use her recovery time to do her own research so that she can reach the right decisions, slowly. Her situation has a few different strands attached:
- Maximising super while possibly accessing an income stream and a lump sum
- Mortgage reduction
- Tax and Centrelink implications
And getting the timing right on all of the above.
She’s smart to move slowly as this will enhance her likelihood of reaching her own best decisions.
A General Advice appointment or an ‘Understanding Your Super’ consultation can be used to explore many of the issues raised above. A separate Mortgage consultation could also help with your decision-making.
Have health issues forced you to change plans? If so, how did you approach your decision-making?