There are three distinct phases of retirement.
2. Access to Superannuation
3. Aged Pension
Essentially, many folk have to wait till they are eligible to receive an aged pension (in my case 67 years old) to be able to retire. This is the worst case scenario for someone with zero investments and zero or little super. It used to be the norm, but with pension ages increasing and the worth of the pension amount so low, it is a bad choice if you can avoid it.
I'll use my own case scenario to explain the three phases.
1. Self-Funded - I wish to retire from paid work at about 55 years old. I'll be 5 years too young to access superannuation and 12 years too young to get the aged pension. This means I absolutely need to have investments outside of superannuation that I can draw on to provide me with an income to tide me across.
In my opinion, the wisest investments to have for this stage of retirement are investments that attract little CGT (Captial Gains Tax - simply, the tax you pay on the increased value of your investment when you cash it in) and that pay regular earnings and also are easy to liquidate. Dividend bearing shares with 100% franking credits fit this bill perfectly.
I need enough of these investments to cover my intended expenses for 5 years till I can access my superannuation in phase 2.
2. Access to Superannuation - 5 years on from phase 1, I will be 60 years old and can now access my superannuation. I would transfer my superannuation accumulation account across to a pension account and reap the benefits of zero tax on earnings and zero CGT too (if indeed this is still available in 5 years time). Back when I was working, I would have actively bought a combination of growth and dividend bearing shares inside superannuation which I can now access tax free. Also, during the 5 years that I was living off my self-funded investments in phase 1, my superannuation would have been quietly reinvesting its earnings and increasing in value even though I was not adding to it.
I would need enough in my superannuation to see me through for another 7 years till I was eligible for the aged pension in phase three.
3. Aged Pension - By this time I will be 67 and would receive the aged pension in full if my remaining investments in superannuation and self funded investments were below legislated thresholds. I would also be eligible to earn a prescribed amount tax free from all my sources of investment outside of super too.
|Camp drafting at the royal Easter showing this year.|
I love watching these horse men and women camp drafting.
For some of us, retiring early is a necessity due to ill health and/or being too physically/mentally worn out to remain in paid work. For others it will be a luxury decision. For me, at 55, it will be a bit of both to be honest.
Using the above phases and concepts, you should be able to reverse engineer your own retirement date and identify the three phases and how they will work. Yes, I know this is based on an Australian scenario, but the similarities certainly still exist across most developed countries.
Have some fun with these figures and concepts, you might just surprise yourself with what is possible!
I have not even mentioned the option of working part time or casually/seasonally during the first two phases which would potentially augment your income in both of these stages.
It's possible folks - do your homework.
Take care and stay nice.