4 ways to design your dream retirement

Estimated reading time
 5 min

Learn all about

• The types of retirement you can have
• Being financially ready for retirement
• Accessing your super once you've stopped working
• How to reduce the effect of loss aversion

Planning your transition to retirement can be an emotional experience, but it’s also an opportunity to look forward to all the good stuff your future holds when you’re no longer working.

What you need for your retirement will come down to your specific vision for your future. And while no two people ever transition into retirement the same way, there are some elements that everyone needs to think about when retirement is just around the corner.

That’s why we’re here to guide you through the ins and outs of transitioning to retirement. So brew a cuppa, settle in, and let’s get started.

What are the types of retirement in Australia?

Retirement doesn’t always mean you need to leave the workforce straight away. With no official average retirement age in Australia, you can work for as long as you like (and can).

So how can you do this? Well, you can transition into full retirement with a semi-retirement plan, which basically means you can keep earning a salary in the lead-up to when you want to stop working for good. With this plan, you might work reduced hours or in a low-intense role. For example, if you used to do hands-on work, you might switch to a desk job in the lead-up to retirement.

Having a transition to retirement (TTR) strategy can be a huge help if you’re keen on semi-retirement. This plan can allow you to access some of your super when you hit preservation age (between 55 and 60 years old depending on your birth year) to supplement your income while you work reduced hours^disclaimer.

You can, of course, simply retire from work entirely and focus on living your best life. Do what’s right for you!

How can you be financially ready for retirement?

Being financially ready for retirement can help you live comfortably when you leave the workforce, and here’s how you can do it:

1. Check in with any investments you have to see how they’re tracking in line with your financial and retirement goals. It’s also a good opportunity to see if you need to change your investment plan, such as diversifying your portfolio and investing in different types of assets. You can always speak to a financial or investment expert for advice.

2. Make a retirement budget by weighing up your projected living costs with your income sources – such as investments and superannuation – to see what kind of lifestyle you can affordably maintain. You can use Moneysmart’s retirement planner calculator or the ANZ 50/30/20 budget calculator to get a detailed snapshot of what this might look like.

3. Get savvy with your super and check where your balance is at. You can access your super once you have reached preservation age. Once you do, you’re able to reinvest your super into stocks and bonds or use the property market to build more wealth. If you’re not sure how to invest your super, it’s always a smart idea to speak with a financial advisor or accountant.

  Hot tip:

Ask yourself how you want to spend your days in retirement. Whether it’s travelling around the country (or world!), volunteering or spending more time with loved ones, there’s endless opportunities and each has its own costs to consider.

How can you access your super when you retire?

You’ve got different options to choose from when it comes to accessing your super at retirement:

• Lump sum: Withdraw your super in its entirety and use it however you like. Just remember that, once it’s withdrawn and used elsewhere, it will be subject to regular taxes.
• Super income stream: This is also known as an account-based pension (ABP). Rather than taking out a lump sum from your super, an ABP is basically an income drawn from, and managed by, your super fund. It allows you to treat your super like an income and transfer your super into a retirement phase account so you can continue to earn returns while receiving payments. The payments from your ABP are tax-free if you’re 60 years and older, but they are subject to tax if you’re 55 to 59 years old^disclaimer.
• Get the best of both worlds: You can set up an account-based income stream, which is when you can receive a series of regular payments from your super fund. Just remember that once it’s withdrawn from your super fund, it is no longer super. And depending on how you use it, you may be taxed at a higher rate.

Don’t forget to avoid ‘loss aversion’

When it comes to retiring, it’s natural to feel some anxiety around investing, especially since you’re not earning an income anymore. While all investments come with risk, you might fixate on the possibility of losing money that would have covered essential expenses. But this fixation might distract you from the potential of a profitable outcome, where you walk away with more than you initially invested.

This mentality is what we call loss aversion, where we feel the pain of loss more than we feel the satisfaction of gains. While it’s easy to focus on the pain of potential loss, especially when you’re not earning a wage, it’s important to think of the bigger picture. If you’re investing, consider how well certain investments have performed and chat with a financial advisor about the best move for your financial situation. This can help you feel more confident with your investment options, allowing you to enjoy your retirement.

Read more about making sure your money never retires