What to do when it's time for you to retire

So you've decided it's nearly time to retire. What's the process, what happens next?

  • As important as retiring is, there's no special form you fill in or button you push.
  • You can access your superannuation once you've reached your preservation age, changed jobs and decided (for now) to stop doing paid employment.
  • Income from your superannuation fund is normally tax free once you're older than age 60.

The whole point of superannuation is to help us build up some extra savings to support us when we retire.

For most people that means using your superannuation to supplement your age pension.

But for others who've been lucky enough to have earned or acquire a lot of money through their working lives, it could mean they have too much money and aren't eligible for the age pension. People who fall into this category will be self-funded retirees.

Either way, sooner or later every one of us will start thinking about when we should retire and how we should organise ourselves.

For most of us, this happens when we're in our 50s and by around our late 50s or early to mid-60s we start thinking about actually retiring, how we might do it and when.

When you start to seriously make these plans, you'll quickly discover how vague it can seem. This is because:

  • For most of us, there's actually no such thing as our retirement age. Instead there's simply the age at which you can access your superannuation benefits and the age a few years down the track when you might become eligible for the age pension.
  • As important as retiring is, there's no special form you fill in or button you push. In this way the whole thing can seem anti-climactic.
  • And even after you've officially 'retired', you can re-enter the workforce any time you like and start working again (defined as working more than 10 hours per week). Although if you're younger than 60, you may need to explain to your super fund why you need to do this. This should not impact how much of your superannuation money you can access, but you should expect to pay regular income tax on your employment income. If you're older than 60, you don't need to explain this to anybody.

Ages you need to know about

When retiring, there are two ages that you need know about:

  • Preservation age - the age at which you can access your superannuation. It ranges from 55 if you were born before 1960, progressing up to 60 if you were born after 1964. In practical terms, this means if you're a Boomer you can access your superannuation now. But if you're a Millennial, you'll have to wait until you're age 60.
  • Age pension age - the age at which you can apply for the age pension. If you were born after 1 January 1957, your age pension age is 67. For most people who haven't already retired, the earliest you can apply for the age pension is age 67.

What does it mean to retire?

To 'retire' used to mean that you've officially stopped working, that is, stopped paid employment, and formally left the workforce. You can do this any age you like.

But if you want to access your superannuation savings, you can only do this after you've reached a certain age, known as your preservation age.

And if you want to also get the age pension, you'll have to be a certain age and your income and assets have to fall below specific thresholds.

You just need to watch out for the 10-hour rule - if you're younger than 60 years of age, your super fund will need you to declare that you don't intend to work more
than 10 hours per week. If you're aged 60 to 64, you don't need to make this declaration.

If you're 65 or older, you can start accessing your super anytime you like.

So in practical terms, retirement for most people simply means you've decided it's time to start drawing down some of your superannuation savings as either a lump sum or as a retirement income stream and that you don't intend working more than 10 hours per week.

Consumer tip

When you retire, make sure you swap your superannuation account balance into a retirement account.

This is because retirement accounts are tax free for most people. If you leave your money in an accumulation product you'll pay nominal tax of 15% on your earnings.

Age pension assets and income tests

To be eligible to receive the age pension you have to satisfy two social security tests - the assets and income tests, that is, fall below their thresholds.

The tests have different thresholds for retired single people and retired couples, and depend on whether or not you own your own home.

For example, if you're in a couple relationship, in most situations, you will be eligible to receive the age pension after you turn 67 and (if you own your own home) have less than $470,000 in other assets, such as investments, savings and superannuation.

If you don't own your own home, you can have up to $722,000.

If you have more assets, you and your partner may still qualify for a part pension if you have less than $1,031,000 (if you own your own home) or $1,283,000 (if you don't).

Accessing your super - conditions you must satisfy

To gain access to your superannuation savings you will usually have to satisfy the following conditions:

  • You're a member of a special superannuation scheme, such as a defined benefit scheme, and you've reached the minimum age at which they may start paying you a pension payment. For example, some Commonwealth public servants who are members of the Public Sector Scheme can start receiving a superannuation pension from the fund once they turn 55 years of age.
  • If you're younger than the age of 65
    • You've reached your preservation age.
    • You've ceased working or changed jobs.
    • If you're younger than 60 you might also have to declare that you don't intend working in paid employment for more than 10 hours per week (don't worry, you can change your mind later).
  • If you're older than 65, you can access your superannuation whenever you want, even if you haven't retired.

You can start working again at any time

Even if after you've retired you can go back to work, that is, work in paid employment for more than 10 hours per week.

You will pay PAYE tax on your employment earnings like you did before you retired and you will be able to start making concessional contributions to your super fund again.

Should you start working again, payments from your superannuation fund will generally be tax free after you're over the age of 60. But if you're receiving the age pension, if you earn more than $212 per fortnight, your pension will be reduced; if you earn more than $2,444.60 per fortnight, you will not receive the age pension for that fortnight.

Fun facts

  • In 2022, the average person about to retire at age 65 had $235,900 in superannuation. Only 16% had more than $500,000 in superannuation, but only 3% had more than $1 million.
  • In 2022, there were 4.4 million people in Australia over the age of 65 of which only 2.6 million (60%) received the age pension, two-thirds of whom received the full rate age pension and one-third of whom received the part rate age pension.

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