Here is a little-known fact. There is no actual official retirement age in Australia. Instead of a fixed endpoint, there are four distinct ages when many Australian workers begin to reassess their work and gradually step back – whether that’s reducing hours, transitioning roles, or leaving the workforce altogether.

The four distinct ages are:

• Age 60 – when you can (if you have ceased an employment arrangement) access your super,
• Age 65 – when you can have full, unrestricted access to super regardless of your work situation,
• Age 67 – when you might qualify for an Age Pension (67) and then,
• Age 75 when you can no longer contribute to super (in most cases).

This is a 15-year life stage, informed by very different financial imperatives and needs. But surely the more important question is, what about you? When would you like to step back from full-time work and start your next exciting chapter?

Many people will base their answer to this question upon the wrong information. They may assume that first of all, they’ll need a million dollars or more, and the mortgage will need to be completely paid off. Happily, that’s rarely the case. Read on to find out how the rules of funding retirement work and how this might mean a much earlier retirement is entirely feasible.

What’s your ‘sweet spot’ for retirement income?

In an increasing number of households, Australians are deciding to transition to retirement rather than stop work completely. There are a few reasons for this. For one, the workplace is much more flexible now and part-time or project gigs are increasingly common. There is also a new-found appreciation of many older peoples’ skills – hallelujah! – so they are no longer ‘put out to pasture’ as soon as a few grey hairs appear. But most compellingly, the compulsory super system, introduced in 1992, is finally maturing. And with 30 or so years of savings, many workers can finally fund a decent super ‘pay cheque’ on top of Age Pension entitlements to create a robust and sustainable income stream.

The role of the Age Pension

The majority of people retiring post-67 will create a retirement income stream including pension entitlements and a layer of super. In fact 67 percent of Australians heading into retirement (aged 67 or older) will be on full or part Age Pension payments. It helps to know the amounts paid. As of March 20 this year, a full single Age Pension plus supplements will pay $31,222 per annum and a full couples’ Age Pension will pay $47,070. A part pension is an amount lower than this full Age Pension amount, until it reaches zero, as your assets and/or income increase. It’s important to realise that about two-thirds of retirees will get at least a part pension, as this means your super is unlikely to be spent outright in the early years of your retirement. Knowing this, you can do your own sums with a higher level of confidence.

What does super plus a pension entitlement look like?

A picture is worth many words. Using the Industry Super Age Pension calculator, here’s a projection for a typical couple – let’s call them Helen and John. They have median savings in super ($417,000 combined). You can see how their super adds a bonus income stream on top of the foundation of the Age Pension. What’s interesting is that, at age 67 and 68, they can retire immediately and still have enough to fund the type of lifestyle they have been dreaming of, right through to their early 90s.

Use the Industry Super Age Pension calculator to better understand your retirement projections. Source: Industry Super Age Pension calculator 

Why do so many people believe their money won’t last?

The most likely answer is that they have probably never taken the time to project the way their savings will combine with an Age Pension benefit. Understanding how your super forms this layer is fundamental to your forward planning. Also reassuring is knowing that your super continues to deliver returns even after you have started spending.

Using the calculator mentioned above you can create your own projection in a few short minutes. You now have a solid basis to which you can add other forms of income and see how this might further supplement your life-long income.

What do you need to know to fast-track your own retirement?

Once you’ve taken the time to project your future income, you will be able to decide upon an ideal retirement date. You can also run different scenarios (say, an extra $50,000 in super because you decide to contribute more or work longer), or different retirement ages, depending upon things you wish to do or experience by a certain age. You can input these different amounts and ‘play’ with the calculator as many times as you wish, to determine more accurately where your sweet spot sits.

And then what?

Armed with this information you’re ready for ‘stage-two’ retirement planning, which means speaking to an adviser at your fund to check your sums and see what else you can do to further boost your income, or start the actual transition into retirement.

But first, make sure that you understand the basics so you can be an informed and equal partner in any such discussion. The Industry Super retirement education site offers a helpful, plain-English explanation of the main components of retirement planning, along with some user-friendly videos.

Get your head around your retirement today at retiringbasics.com

Disclosure statement

This content is produced by The New Daily in partnership with Industry Super Australia.

This information provided in this article is of a general nature only and does not constitute financial or other advice. It is important to consider personal objectives, financial situations or particular needs when making financial decisions.