Achieving a comfortable retirement is the ideal goal for most working Australians, so it’s no surprise that some of us want to get there early. Retiring before the traditional age of 65 is an enticing prospect that offers many benefits, but it is a big decision.
Early retirement can have a significant impact on your financial security, social connections, and overall well-being so it’s important to weigh your options and consider the potential pitfalls of retiring early before you decide to do it. In this article, we’ll take a look at some of the benefits and risks that come with early retirement, as well as discussing actionable steps you can take to make early retirement a reality.
Why retire early?
While the average retirement age in Australia is around 65 years old, there are many people who would prefer to stop working earlier.
Early retirement can have numerous benefits for those who are financially and emotionally prepared for it. Firstly, it allows individuals to have more control over their time and pursue other passions or interests that they may not have had the opportunity to explore while working. This can lead to a more fulfilling and meaningful life, with less stress and pressure associated with full-time employment. Early retirement also provides more flexibility to travel and spend time with loved ones, without being constrained by work schedules and commitments.
Additionally, retiring early can potentially reduce the risk of burnout and other health-related issues associated with long-term employment, allowing individuals to prioritize their physical and mental well-being.
Finally, early retirement can provide a sense of financial freedom and security, especially for those who have planned and saved adequately.
Early retirement can sometimes also be necessary due to illness, redundancy or becoming a caretaker for a loved one.
Challenges and Downsides of Early Retirement
While the benefits of early retirement are often readily apparent, there are downsides to consider, including:
Reduced savings
Retiring early means accessing your retirement savings earlier and increasing the number of years that your savings will need to last for. With this in mind, you’ll need to ensure that you have enough to sustain an extended number of years.
Living on savings alone
According to the Australian Bureau of Statistics, 49% of retired men and 44% of retired women over 45 rely on the pension for their main source of income. If you were to retire before you become eligible for the pension, you would need to be able to rely on savings alone.
The Association of Superannuation Funds of Australia (ASFA) estimates that single Australians will need $43,601 a year, while couples will need a combined $61,522 a year for a comfortable retirement.
For most retirees, a comfortable lifestyle would mean being able to maintain a lifestyle that allows for frequent leisure activities or hobbies and the occasional domestic and international holidays. Ensuring you have sufficient funds to sustain your ideal lifestyle in retirement requires careful planning and budgeting, and it’s never too late to start.
Tips for planning an early retirement in Australia
Here are some tips to help you plan an early retirement:
Financial planning
Having a financial plan for your retirement, and especially an early retirement, is crucial. It’s a good idea to understand your own financial goals, current lifestyle expenses and take into account any debt that you may have. This way you can keep on top of whether your current lifestyle is sustainable in the long run.
Set up a savings goal
Part of budgeting and financial planning is also setting aside funds for the future. Having a savings goal will help you to keep track of your savings and how much you’ll have by the time you begin your retirement.
Consider creating a lean, moderate and fat budget. While most of the time you’ll be somewhere in the middle, it’s important to know how much you have to spend during your retirement. Knowing exactly how much you need and how much you have can help reduce any anxiety about the future. You can even ensure that you have enough to spend on the things you love.
Prioritise paying off your mortgage
Paying off any debts, especially your mortgage, will give you greater financial freedom to enjoy your retirement. This will enable you to reduce the amount of interest you pay in the long run and also means you won’t be eating into your retirement savings just to pay it off.
Increase your super
Your super will make up a majority of your retirement savings. Increasing your super while you’re working will help you in the long run in ensuring that you have enough to sustain the lifestyle you want. This goes back to having a financial saving plan to keep track of your savings.
Budget for your current lifestyle
The lifestyle you’re living now is probably how you’ll be living in your retirement. While your expenses may decrease in retirement, you’re more likely to continue your current lifestyle even after you stop working. You can try splitting your budget into categories such as essentials, groceries, utility bills, recreation and even medical bills.
Early retirement is not an impossible mission. It just depends on the type of lifestyle you imagine for yourself in retirement. In some cases, early retirement might not come as a choice but as a necessity as a result of life circumstances. Nevertheless, it’s never too early to start planning your retirement. By following these tips, you can start planning for an early retirement.
If you’re interested to find out more about what it’s like to live in a retirement village, enquire today to get in touch with our staff.