For many people, a transition to retirement is a wise approach. Whilst we all dream of not having to work, it is a major lifestyle change that has many ramifications beyond the financial. Our job is to help our clients put the right financial planning strategy in place to provide for their retirement expectations, but we also care about the big picture. Retirement planning is not just about the money.
Maryanne and Geoff came to see us recently as they were both 60 and decided it would be great if they could slow down a bit. They enjoyed working but they were a little nervous about the reality of full retirement and how this would impact them in other ways. They did however want to have more time to spend with their young grandchildren and take some longer holidays. They liked the idea of tapering into retirement rather than stopping work completely, but they wanted some advice on how to do this without their cash flow suffering.
Firstly, we sat down with Maryanne and Geoff and did some budget work based on their needs and wants in this next stage of life. They had both been able to negotiate part-time arrangements with their employers working three days a week. Our recommendation was that they use a combination of their salaries and start to draw a Transition to Retirement (TTR) pension from their super fund. Once you reach preservation age, you can start a TTR pension by transferring some of your super to an account-based pension. The rules stipulate that you need to keep some money in your super account to continue to receive your employer’s compulsory contributions or any voluntary contributions you make. This strategy would enable our clients to access a tax-effective income stream to supplement their salaries.
One of the great things about this approach is that you can get used to working less and adjust slowly. While you are still working you can pay off any remaining debts, save on tax and continue to grow your retirement savings.
We always remind our clients that they need to be ready for full retirement. Going from working five days a week to zero can create other non-financial issues. For many of us, work provides a sense of purpose and identity, and if you are married you are probably not used to spending 24 hours a day with each other. You need to think about how you are going to fill your days. If you are someone who has lots of hobbies or enjoys contributing to the community you will probably find the adjustment easier. It is worth doing some thinking about how you want your retirement to look. Transitioning can provide you with the space to find new passions and get used to a slower pace of life.
If you would like help with planning for retirement get in touch.
