Forced Into Early Retirement? Here are 4 Things To Consider

Are you facing an unexpected early retirement? The uncertainty can be overwhelming, but fear not – you might be better prepared than you think.

Many Australians find themselves retiring earlier than they had in mind. While the average planned retirement age hovers around 65, the reality is closer to 56. Unexpected circumstances like job loss, health issues, or caregiving responsibilities can force us into retirement prematurely.

The ideal retirement varies from person to person, whether globe-trotting, volunteering, or quality time with family. Regardless of the circumstances, careful planning and goal setting can help you achieve your plans or, at the very least, prepare you well if you are unexpectedly forced into retirement.

If early retirement catches you off guard, don’t fret. This post will explore four crucial steps to make the most of an unexpected retirement.

1. Assess Your Current Financial Situation

If retirement knocks on your door earlier than expected, evaluating your financial standing is vital. Begin by checking your superannuation balance to determine the resources available if you retire unexpectedly.

When assessing your situation, consider your assets, debts, and any income you might get from sources like government support. For example:

– How much do you have in your superannuation?

– Do you have any savings you’ve accumulated?

– Do you still need to pay debts like credit cards or mortgages?

– Can you get income from personal investments, such as stocks or property?

Additionally, it’s worth exploring whether you meet the criteria for the Government Age Pension.

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

2. Calculate Your Living Expenses

Once you’ve grasped your financial assets and income streams, it’s time to calculate your day-to-day expenses. This will give you a clear picture of the annual budget you’ll need during retirement.

These expenses encompass various aspects of retirement life, such as housing costs, utility bills, groceries, entertainment, vacations, insurance, home and vehicle maintenance, and healthcare expenses.

Understanding your financial needs will help gauge whether your superannuation or savings can sustain your desired lifestyle.

3. Know When You Can Access Your Superannuation

Accessing your superannuation typically depends on your preservation age, which is determined by the government and ranges from 55 to 60 based on your birthdate. To access your superannuation, you must fulfil certain criteria:

– You must permanently retire.
– Opt for a transition to retirement while you are still employed.
– Cease employment with an employer after turning 60.
– Reach the age of 65, even if you continue working.

In some exceptional circumstances, you may be eligible for early superannuation access due to financial hardship, compassionate reasons, or permanent disability.

4. Explore Income Options With An Account-Based Pension

If you face early retirement unexpectedly and meet the requirements, exploring your income options is important. One of those options is to receive your superannuation as a lump sum payment, which means you’ll get all your retirement savings at once.

Another option is to transfer your superannuation into a dedicated retirement account, an account-based pension. An account-based pension is a financial product designed specifically for retirees. Here’s how it works:

Regular income payments

When you choose an account-based pension, your retirement savings remain invested, and you receive regular income payments from the invested balance. These payments are typically made on a regular schedule, such as monthly, quarterly, or annually. The amount you receive is calculated based on the balance of your account and factors like your age and the performance of your investments. Think of it as receiving a regular income similar to a salary or wages during your working years.

Flexible access

Unlike taking a lump sum payment, which provides you with all your retirement savings at once, an account-based pension allows you to access additional funds from your superannuation whenever you need them. This flexibility can be valuable, especially if unexpected expenses arise during your retirement.

Investment opportunities

With an account-based pension, your remaining balance is typically invested in various assets, such as stocks, bonds, and other investments. This means that your retirement savings have the potential to continue growing through investment returns. While this growth is not guaranteed and comes with some risk, it allows you to benefit from potential increases in your retirement wealth while still receiving regular income payments.

By considering these income options and understanding how an account-based pension works, you can make informed decisions to navigate unexpected retirement more confidently while maintaining financial stability.

Get Professional Financial Advice

Planning for an early retirement frequently depends on your pension for an extended duration. While this might seem daunting, seeking advice from a financial adviser can offer valuable insights and bolster your financial confidence. The earlier you embark on your retirement planning journey, the greater control you can exert over your financial future.

  • Collective
  • Feb 21 2024
  • Retirement Planning
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