When do you plan to retire? While you might have a specific age in mind, the reality of retirement in Australia is far more flexible than you might think.
In fact, an increasingly common trend is to phase into retirement over a period of years, rather than come to an immediate employment halt.
Despite this, understanding when you can and should retire is crucial for planning your retirement.
Let’s explore the key elements that shape your retirement age in Australia.
If you’d rather watch than read, this video also covers the topic:
What is the Retirement Age in Australia?
The average retirement age in Australia is around 57, being 59 ½ for men and 54 ½ for women. However, the age that people intend on retiring differs significantly, being age 65 ½.
But while these might be the ages that Australians retire, what is the official retirement age in Australia?
The truth is, there isn’t one! You are free to retire whenever you like – assuming you can afford to.
The affordability of retirement is likely to come down to two factors:
-
- The Age You Can Access Your Super: Access to superannuation can provide you with the funds necessary to transition into retirement or completely retire.
- Age Pension Age: This is the age that you first become eligible to apply for the Centrelink Age Pension, which can supplement other sources of income to help cover expenses in retirement.
Let’s dive into each of these ages individually and see how they can help you plan your retirement.
What Age Can You Access Your Super?
To access your superannuation you need to have first met what is called your superannuation preservation age.
The superannuation preservation age is age 60.
The amount of your superannuation you can access will depend on your age and your employment status, as follows:
Age 60 to 64
If you are between age 60 and 64, there are conditions that will dictate how much of your super you can withdraw.
- Still Working – if you have reached age 60 and are still working, you are generally eligible to use all or part of your super to commence a transition to retirement income stream, which provides you with access to between 4% and 10% of your balance each financial year.
- Changed Work After 60 – if you had an employment arrangement come to an end after attaining age 60 and notify your super fund of this, then you have unrestricted access to your super and can make lump sum withdrawals or start an income stream (or both) – even if you immediately start a new job. Subsequent contributions will be inaccessible though.
- Retired – if you are aged 60 or over and retired, with no intention of returning to full-time or part-time work ever again, then you have unrestricted access to your total super balance and can make lump sum withdrawals or start an income stream (or both).
Importantly, waiting until you are fully retired is usually not your best option. There are several tax-effective retirement strategies that we implement with our clients once they have attained age 60, even if they are still working.
Between the ages of 60 and 64, limits apply to the amount you can access, or certain conditions need to be met for full access. But, once you reach age 65, all of that changes.
Age 65 or Over
Turning age 65 gives you full, unrestricted access to your superannuation, even if you are still working.
From age 65 onwards, you can withdraw as much of your super as you like in the form of a lump sum, or use your super to start a retirement income stream.
While reaching your superannuation retirement age in Australia does allow you to withdraw your full balance, you should seek personal financial advice before doing so, because there are many advantages in retaining as much as possible within the superannuation environment throughout retirement.
Related article: How Does Superannuation Work When You Retire
That covers the application of the superannuation retirement ages, but how does the Age Pension retirement age work?
Age Pension Age
The Age Pension retirement age is 67 and is the first age that you become eligible to apply for Centrelink Age Pension payments.
The Centrelink Age Pension is a social security payment that can be used to supplement your other sources of income throughout retirement.
To be eligible to receive Age Pension payments, you need to meet certain conditions, including:
- Residency Rules; and the
- Income & Assets Test.
As the Age Pension is a means-tested social security payment, your level of income and assets at any given time will dictate the amount of Age Pension you will receive each fortnight, if any.
Should you be below the lower thresholds for both the Income Test and Assets Test, you will be entitled to the full Age Pension rate.
If you are in between the lower and upper thresholds, you will receive a part-Age Pension and if you are above the upper threshold for either the Income or Assets Test, you will not receive any Age Pension payments at all.
The assessment for Age Pension payments is done on a continual basis, so even if you are not eligible immediately upon attaining age 67 due to exceeding the upper threshold, you might be eligible at a future date as your financial circumstances change (and vice versa).
There are also a number of strategies to consider that can increase the amount of Age Pension payments you receive.
Other Considerations On Deciding When To Retire
In addition to your retirement age, there are several other things to consider when it comes to deciding when to retire, such as:
- Retirement Expenses
- Capital Expenses
- Investment Returns
- How Long Your Money Will Last
- Tax Implications
Retirement Expenses
Arguably the most important step in preparing for retirement is calculating what your expenses will be throughout retirement. You might aim to cover similar expenses to what you had pre-retirement, you may spend less, or you might choose to live large in retirement.
Whatever the case may be, understanding your target expenses for retirement is a good starting point. Use this budget planner to help.
The level of your retirement expenses will dictate the age you can afford to retire. Lower expenses will mean a sooner retirement age and larger expenses may mean a later retirement age.
Capital Expenses
Most clients we work with have several capital expenses during the initial years of retirement. It’s what retirement’s all about, isn’t it?
Whether it be a new car, caravan or boat, home renovations or an epic overseas trip, there’s bound to be at least one capital expense on the cards when you retire.
How will these capital expenses affect your retirement age? Well, you will basically be reducing your retirement savings by the cost of the one-off expenses, which means you will have less to support your desired retirement income and therefore may need to retire at a later age to achieve it.
Investment Returns
Investment returns are also an important consideration in retirement.
Generally, the higher risk you take on, the higher your expected long-term return should be, albeit with a higher variance in eventual outcome.
For instance, an aggressive portfolio might be expected to produce an average return of 9% p.a. over 5 years; but the actual return after 5 years could actually be 13% or 5% – or even outside these ranges. This reduces the certainty of your retirement plan.
Conversely, taking on a lower investment risk is likely to provide lower long-term returns, but a greater certainty of expected outcome.
For example, a conservative portfolio might be expected to produce an average return of 4% p.a. over 5 years; but the actual return after 5 years could actually be 3.5% or 4.5% – giving your retirement outcome much greater certainty.
Lower returns will mean you use up more of your capital each month to fund retirement expenses, which may mean retiring at a later age.
How Long Your Money Will Last
Once you have an idea of your retirement age, your retirement expenses, any capital expenses and the type of investment risk and return you are comfortable with, you can perform some rough calculations around how long your money will last in retirement. This retirement calculator may help.
You can use this calculator to adjust your retirement age and see the impact it has on your retirement outcome.
Tax Implications
Another consideration once you retire is how your investments are held and where your retirement income will come from, including the tax implications of each.
For example, owning investments in your personal name will be taxed in a different manner to owning investments in superannuation accumulation phase, which will then differ again from tax in superannuation pension phase.
Generally, withdrawals from super are tax free from age 60 onwards. However, this is not always the case. It ultimately depends on the tax components of your super balance.
Understanding the taxation of your investments and retirement income is essential in determining your retirement age and how much you need for retirement.
Ideally, if you can achieve tax free income and tax-free investment earnings, you should theoretically be able to retire at an earlier age.
Related article: Taxes in Retirement: 7 Types & Smart Strategies to Reduce Them
Ultimately, knowing the retirement age in Australia in regards to superannuation and the Centrelink Age Pension is a good first step to preparing for retirement, but as you can see there’s so much more!
Preparing for a retirement in a more strategic manner will provide your retirement plan with strong foundations and a high probability of achieving your retirement objectives, so that you won’t need to worry and can enjoy retirement for what it is.
Toro Wealth specialises solely in retirement planning advice. Our aim is to give you confidence around when you can retire, the retirement income you can achieve and how to optimise your financial position in the lead-up to retirement. If you’re interested in learning more about our service and cost, click here.
FAQ’s About Retirement Age
Listed below are some frequently asked questions about the retirement age in Australia.
What Benefits Do You Get When You Turn 60 In Australia?
When you turn 60 in Australia, you gain the ability to access your superannuation either as a lump sum or income stream, or both, depending on your employment status. You may also be able to apply for state-based seniors cards and concessions, depending on the state you reside in.
What Am I Entitled To When I Turn 65 In Australia?
Once you attain age 65 in Australia, you will have complete, unrestricted access to your superannuation, regardless of your employment status. You may also be able to apply for state-based seniors cards and concessions, depending on the state you reside in.
Can You Retire Before 67 In Australia?
In Australia, you can retire at whatever age you choose. There is no legal requirement to work if you choose not to and have the financial means to support your retirement needs. However, if you believe you will require access to your superannuation to assist in funding your retirement, then you will need to wait until at least age 60, and if you will rely on the Centrelink Age Pension, you are only eligible to apply from age 67.
At What Age Can I Withdraw My Super Without Paying Tax?
You can generally access your super tax-free from age 60 onwards, whether taken as a lump sum or income stream. However, if your super balance includes an untaxed component, tax may be payable.
