Money

How much it pays to put off retirement for another 5 years

As Australians reinvent what it means to get older, there's no rush to stop working. Bron Maxabella does the sums to explain just how much more you can have in your pocket if you keep working for longer.

By Bron Maxabella

Everyone wants to retire as early as possible, don’t they?  Not necessarily. A growing number of Australians are retiring later and for good reason.  

An increased cost of living, longer life expectancy and flexible work opportunities have all combined to make many Aussies rethink their retirement plans.

Fact is, financially, socially and emotionally you’ll probably be better off if you stay in the workforce.

The financial benefits can be huge

The most obvious reason to delay retirement is that you’ll have more time to accrue superannuation. This can increase both the amount and longevity of your retirement income stream. Working just 5 more years can have a huge impact on the income you’ll have in retirement.

For example, a quick calculation using the MoneySmart’s Retirement Planner shows that if a 55-year-old single female earning $120,000 per annum with an existing $280,000 super balance retired at 60, she would have a combined super and pension income of $44,197 in retirement. If she worked an extra 5 years and retired at 65, she would have $54,590 per year – in 24% increase, or $10,393 extra every single year.

Read Citro's Calculating Retirement guide to find out more and uncover the right retirement calculators to help you plan how much you'll need to retire. It's also important to start paying more attention to your superannuation and paying down debt.

If that’s still not enough incentive to face the daily commute, there are other options. Depending on the work you do and your employer’s situation, shifting to part-time employment could be the ideal compromise. This particularly suits anyone who wants to get a feel for life as a retiree but isn’t quite ready to make the leap.

If you’ve reached your preservation age (between 55 and 60, depending on your birthday), you might suit a ‘transition-to-retirement’(TTR) strategy. This is where you reduce the hours you work and use your super pension to supplement your income. While you’ll be taking out some of your superannuation, you’ll continue to receive super contributions from your employer which helps top you back up.

Read more on the transition-to-retirement phase.

A TTR strategy may also reduce your tax. The TTR payments are tax free for over 60s (they are taxed at your marginal rate if you’re 55-59 years but with a 15% tax offset). If you earn a mid-to-high income, the tax savings can be substantial.

Getting the right TTR strategy working for you can be tricky, so check in with a good financial adviser. 

You can also read 11 ways to make your retirement income last as long as you do, as well as find out more about the Age Pension and whether Peak Pension might be a retirement strategy for you.

If you own a home and want to take advantage of tax breaks to add more money to your super balance, check out the Australian Government's generous downsizer bonus.

Socially you might be better off at work

Before you leap into the retirement unknown, have a think about your social networks. The older you get, the more important other people become. People with meaningful social lives live longer, have less cognitive decline, better physical health and generally report feeling happier.

Here’s how to retire without jeopardising your health.

Most workplaces come with the benefit of a built-in social network. As much as you can’t stand listening to Barry from accounts talk about his award-winning jumping poodle (yes, it’s a thing), he’s actually doing you a favour. Interacting with a number of casual acquaintances or ‘weak ties’ enhances your feeling of belonging and your overall quality of life.

Work offers easy access to weak tie relationships. The are the co-workers and supervisors you interact with every day, building up a huge store of shared references. The inside jokes, everyday favours and shared moments add up to a firm feeling of belonging.

When you retire, the number of weak tie relationships you have significantly reduces. While you will hopefully develop deeper ‘strong ties’ with friends and family, the loss of your easygoing, low-maintenance weak tie network can have a significant impact on your emotional wellbeing.

So, it makes sense to keep the Barrys in your life for as long as possible.

Keep clocking on for better emotional health

Older adults who have retired are more likely to experience depression than those who are still working. There are many reasons for this, however the change to social roles and loss of income are known contributing factors.

For many people, the primary cause of retirement depression is a lack of purpose. Moving from a structured workdays to unstructured everydays seems exciting until you’re actually living it. The lack of routine and business hits hard for many and it’s not until the ‘holiday’ weeks become months and the months become years that you truly appreciate the role work played in your life.  

If that rings true for you, it’s worth delaying your retirement to stay in the game for as long as you can. At the very least, use the next few years to carefully plan what retirement will look like for you. Where will you live? How will you spend your days? What activities will you engage in? Who will you spend time with? Will you travel? How will you structure your time?

One last thing to consider is that retirement doesn’t have to be forever. You can ‘unretire’, even if you've taken a lump sum super payout or are being paid a super pension from your fund, you can still return to work.

Check out industries where older workers are unretiring and thriving.

If you gained access to your superannuation by completing a statuary declaration that you would not return to work, you will need to prove that your circumstances have changed since making your declaration. Otherwise, feel free to get out here and make your sparkling career comeback.

Advice given in this report is general in nature and is not intended to influence readers’ decisions about investing or financial products. People should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions. 

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