Retirement may not be the first thing on your mind when you get up in the morning, but eventually, it will be. Do you know what you have to do to make the transition? Have you got an idea of what retirement is going to look like for you?
Retirement is as individual as a fingerprint. What may work for one person may not be the right fit for someone else. If you have worked all your life, you may want to stop working and just relax for the rest of your days enjoying a life with family, friends, and leisure activities. Or you may want to keep working, but not as much. It truly depends on you.
Why You May Delay Retirement
With the pension age slowly drifting from 65 to 67, it signals the need for all of us to work a little longer if a regular pension is going to be part of a retirement plan. Plus, we silly humans have evolved to the point where we are living longer. You can probably blame that on the fitness crazy and reading labels on food containers, or good genes.
What that boils down to is that the average 65-year-old in good health will likely reach 85 or 90 with women getting closer to the higher end of that scale than men. Blame your genes for that, guys. The upside to living longer is that we can work later in life before retirement becomes breakfast table conversation.
Access To Your Retirement Income
Let’s say this year is the year you’ve decided to punch the clock for the last time. You will need to be 66 and 6 months old and pass assets and income tests as part of your pension application. Yes, there will be tests however, you can access your super much quicker if needed. All you need to do is reach the required age and meet a condition of release. The best part is that you can keep working after 65 and still draw on your superannuation.
Retirement Transition
One of the best ways to shift into retirement is to do it slowly. After all, not everyone enjoys the sudden stop of work and instant change to sleeping in, wearing pajamas all day, and never looking at a clock or watch again. This is why easing into retirement is a good way to go. That may mean reducing work hours or entering into a hybrid work schedule where some hours are in a work-from-home format.
If income is an issue, you can use some of your super in the transition to retirement (TTR) format. But before you go there, confirm that your super provides this option. Most of them do. If yours doesn’t, you can create one from your SMSF (self-managed superannuation fund).
The Self-Managed Super Fund (SMSF)
As easy as this sounds, there are guidelines to meet before you can go this route. They include:
How The Money Can Be Used
You can’t take it out as a lump sum. It has to be withdrawn as an income stream instead.
How Much Can Be Used
There is both a minimum and maximum withdrawal amount. The upper limit is 10 percent of the total TTR balance.
How It Is Taxed
If you are over the age of 60, the income is tax-free. However, you may be taxed between ages 55 and 59 but there will be a tax credit of 15 percent, which should help.
Pros and Cons
There are both benefits and disadvantages to using this strategy as part of your retirement plan. Here is a closer look at what those are:
Pros
If you continue to work, your employer will still make super payments.
Cons
When you finally choose full-time retirement, you will have a small superannuation fund to work with.
Conclusion
There was a time when someone reached the age of 65, they automatically retired. That is no longer the case. Although early retirement (at age 50 or younger) is not uncommon, the trend in recent years is to delay retirement until you are good and ready to do so.
And in today’s world, that means the best retirement for many.