The three milestones that matter in retirement

Australia has no compulsory retirement age. While some occupations may have age based limits for safety reasons, you can generally stop working when you want to. 

The big question is, how will you fund your lifestyle after you stop working?

For many people, superannuation and the Age Pension will be two key sources of income, both of which are subject to different age based limits. 

That means there are three separate milestones you need to be aware of when planning your retirement income:

Preservation age – when you can access your super

If you were born on or after 1 July 1964, the earliest you can access your super (i.e. your preservation age) is age 60. However, turning 60 alone isn’t enough to access your super, you still need to meet a condition of release.

Common conditions of release are:

• ceasing an employment arrangement after age 60
• commencing a transition to retirement pension
• turning age 65 (if you haven’t retired).

Once you turn 65, you can access your super whenever you’d like, regardless of your employment status.

Some special conditions of release may allow access earlier than age 60, such as permanent incapacity.

Should you withdraw your super or set up an income stream?

While you can withdraw your super when you meet the conditions outlined above, there are some potential tax benefits of using your super to set up a retirement income stream – such as an account based pension.

These pension accounts allow you to earn tax free investment earnings. That’s compared to up to 15% tax on investment earnings in a super account and your marginal tax rate (up to 47% including the Medicare levy) on investment earnings outside super.

Age Pension age – when you may qualify for a government pension

From age 67, you may be eligible to supplement your income with Age Pension payments, which can help make your own retirement savings last longer.

Your age alone doesn’t entitle you to Age Pension payments. Your eligibility and the size of the payments you can receive also depends on Centrelink’s income and assets tests.

Even if you’re only eligible for the minimum payment, qualifying for the Age Pension comes with the additional benefit of accessing a Pensioner Concession Card for cheaper health care, medicines and some other discounts.

Remember, even if you don’t qualify for the Age Pension at age 67, you may at a later stage.

What if I retire before I can access my super or the Age Pension?

Before you can access super…

Even if you retire before age 60, your super stays ‘locked’ until you reach age 60 or you meet special circumstances for a condition of release – such as severe financial hardship or permanent incapacity. 

If you don’t meet a condition of release, you’ll need to use your savings outside super to fund your lifestyle until age 60. 

If a large percentage of your savings is tied up in super or your family home, you need to consider how you will fund this period – especially if you’re planning to travel or take on other big expenses. 

Before you can access the Age Pension…

Because the Age Pension age is 67, many retirees will have access to their super for at least two years before they can receive any government support. Those who retire at age 60 have seven years to wait. 

During this period you’ll be relying primarily on your super and other assets, so you need to factor in what this means for your later retirement. 

Expert guidance to navigate your retirement

Financial advice can help you navigate key life decisions when things become more complex or the stakes get higher and preparing for retirement is a great example.

_{Source: Colonial First State}