Retiring early – is it possible?

Written on the 13 April 2023 by Parkside InvestorPlus

Retiring earlier than the magic age of 65 is certainly possible.

However, given the current volatile economic climate, is this just a dream or a notion reserved for the lucky few?

What makes this discussion interesting is that in October 2022, an independent survey commissioned by finance platform money.com.au found that roughly a quarter (26%) of people aged 35-44 desire an income of at least $100,000 annually during their retirement (this is compared to only 20% of 45-54-year-olds and 10% of 55-60-year-olds).

How can I retire early?

So currently you’re earning money from your job to pay for your lifestyle.

If your desire is to retire earlier than any prescribed or published official age, then basically you’ll want to have invested enough money and accumulate enough assets so that the return from your investments can cover your cost of living.

As soon as you do that, you no longer need your job – and you can retire!

If you want to retire early, it’s all about planning ahead

Benjamin Franklin once said, “If You Fail to Plan, You Are Planning to Fail”

The retirement phase of your life is no different.

The problem is that many Australians approach retirement very much underprepared.

Statistics show that less than 45% of Australians, under the age of 40, feel they are prepared for retirement.

How much income will I need in retirement?

The Association of Superannuation Funds of Australia (ASFA) reports regularly on the annual cost for singles and couples to achieve either a modest or comfortable lifestyle – while the numbers change on a regular basis, one thing is sure, given inflation has now reared its head, our cost of living has started to creep up.

In order to live a modest or comfortable lifestyle, you will need;

ASFA Budgets for various households and living standards for those aged 65-84 (December quarter 2022)

The above numbers continue to evolve given the rising cost of living and age care needs.

And while there are ways of stretching your retirement dollar, there are many actions you can undertake to ensure a successful retirement.

Here are some practical and pragmatic steps you undertake well before you reach retirement to ensure those wonderful years are as stress free as possible.

Fully understand your finances and financial goals

The first step in planning for your retirement is to have a clear understanding of your debt situation, income, assets and ongoing expenses.

How much income you need to retire on depends on your lifestyle aspirations as per the table above, or more!

Start saving for your retirement

Simply relying on your employer’s super guarantee of 10.5% or 12% or whatever the figure may be in the future, may not be enough.

Salary sacrificing your pre-tax income into your super fund offers substantial tax benefits, with amounts taxed at 15 percent – far lower than the tax on employment income.

Obviously, it’s best if you can enter your retirement phase as debt free as possible.

Pay down high-interest debt.

Save tax refunds and bonuses.

Ensure you have adequate health insurance – recent research estimates that an Australian couple will face yearly healthcare costs of between $4,975 and $9,900 in retirement.

Retirement trial run

Even if you're in the group that's looking forward to their retirement, you could find that it's not all that it's cracked up to be when you do get there - the reality has not met the expectations.

Just as you might take a car for a test drive before deciding on buying it, why not take your retirement out for a test drive?

Finally, if you haven’t already, make sure you’ve engaged a reputable, trustworthy, and experienced financial planner.

So, is it possible to retire earlier than 65 or whatever the age, the answer is YES.

However, it requires planning and a solid direction.

Your financial planner is your financial coach – they will make sure you stay on track with your financial goals and that you are financially, mentally, and emotionally ready for retirement.

Parkside InvestorPlus has guided clients into, and in, their retirement with the minimum of financial and emotional stress by putting in place practical and financially sound strategies.

Contact us or call us (02) 9899 4899.