Source : the age
As we ease back into work after a few indulgent weeks off, it’s natural for the thought to creep in: could I retire early?
Early retirement – or even just stepping away from work you don’t enjoy – is one of those big, aspirational goals that crosses everyone’s mind at some point. The reasons are as varied as they are compelling.
Starting early when it comes to retirement planning can make all the difference.Credit: Simon Letch
For some, it’s the grind of a stressful job that leaves them feeling burnt out; for others, it’s a growing sense of boredom and a longing for life beyond the daily routine. Then there are those who simply crave more time with their family or a chance to pursue passions put on hold.
Whatever the motivation, the idea of stepping back early, whether into part-time work or full retirement, before traditional retirement age has a strong pull for many in their 50s – especially at this time of year.
But let’s get real: early retirement takes serious planning. It’s not just about leaving work behind – it’s about building a life where financial security and flexibility go hand in hand.
And it comes with its own set of challenges, like funding more years in retirement, having less time to grow your savings through contributions and compounding, and navigating the reality that you can’t access your super until you’re 60 or later.
But if the idea of retiring early has taken hold and won’t let go, it’s time to talk about how to make it happen – because successful planning follows a clear and deliberate process.
1. Cover your long-term retirement first
Retiring early doesn’t mean you can bypass the essentials of long-term retirement planning. In fact, it demands even greater attention to detail to ensure your money lasts – especially when you’ve got decades ahead to fund not just your living expenses but also your lifestyle dreams.
A common mistake many people make when planning for early retirement is becoming overly focused on building savings outside of superannuation. It seems logical at first – you need access to funds before you can dip into your super – but neglecting the incredible tax advantages of super can be a costly misstep. And trust me, those tax benefits are game-changing!
Here’s why: contributions to super are taxed at a lower rate compared with your regular income. Plus, the returns generated within your super fund are also taxed at lower rates. This makes super one of the most efficient ways to grow your wealth over time. The earlier you start contributing and letting compounding work its magic, the more you’ll benefit from these tax efficiencies.
And once you officially retire – whether that’s at 60, having met a condition of release, or at 65 when you gain unconditional access – you can withdraw your super completely tax-free as an income stream or a lump sum up to the transfer balance cap of $1.9 million a person. That’s a huge advantage when it comes to funding your retirement in the most cost-effective way possible.
So, your priority should be to supercharge your super early. Maximise your concessional contributions, such as salary sacrificing, and take full advantage of non-concessional contributions while you’re earning. By building a solid super foundation, you’re setting yourself up for long-term security.
Once your long-term retirement is covered, you can shift your focus to the next challenge: funding the gap in your “Prime Time” years, or the period before you can access your super but when you still want the freedom to live well and embrace flexibility. Planning for this phase effectively is what turns early retirement from a dream into a sustainable reality.
Early retirement doesn’t mean “stopping”; it means setting yourself up to live life on your terms.
2. Plan for the gap
Here’s the tricky part: if you retire early, your super will likely be locked away until you hit preservation age. This means you have to plan ahead to fund those years when you want to work less, or even retire fully. So, how do you fund the years between leaving work and accessing your super? You have two main options:
- Build a pot of funds to spend down. For example, if you need $70,000 a year and plan to retire five years early, you’ll need a $350,000 stash in accessible savings or conservative investments – and you’ll need them to be getting a return that’s at or higher than inflation.
- Create a sustainable investment portfolio. The other approach is to build up an investment portfolio that can generate you a steady income through dividends or distributions to allow you to bridge the gap. It requires careful planning to ensure your portfolio aligns with your income needs. And you might benefit from investment advice to get it into shape.
Both options require tax-savvy strategies. Income from investments outside super is taxable, so minimising capital gains tax and managing your effective tax rate is crucial.
3. Get rid of your debts
Want to supercharge your early retirement? Start by getting rid of major debts and recurring expenses – especially your mortgage. Housing costs are often the single biggest expense for Australians, and paying off your home before retirement slashes your income needs.
For example, if your mortgage repayments are $3900 a month, you’d need more than $1.2 million in investments (assuming a 4 per cent withdrawal rate) to cover them. Without that burden, you need far less to maintain your lifestyle – and every dollar saved can go towards savings, travel, hobbies or simply living well.
And it’s not just the mortgage. Look at other big-ticket expenses and look at “rightsizing” things that cost you more than you need them to. Think about whether it’s a good time to downsize and free up some equity; or whether there are loans or debts you can clear before your early retirement day arrives.
Clearing these hurdles gives you the freedom to focus on what truly matters.
4. Prioritise flexibility over ‘quitting’
Early retirement isn’t just about walking out of the office for good. For many, it’s about stepping into a phase of greater flexibility. Whether that’s part-time work, a career change, or diving into your passions, the goal is to create the ability to make choices in your life.
Flexibility comes from having a solid financial foundation, which ultimately comes from three things: a super fund with enough in it to offer you long-term security; accessible funds to support you in the years before you can access retirement savings; and as little debt as possible and manageable expenses.
When you put the focus on these things, you put yourself in the position to have more choices. Early retirement doesn’t mean “stopping”; it means setting yourself up to live life on your terms, whether that’s hiking in the Greek islands or simply having time to watch the grandkids grow.
Bec Wilson is author of the bestseller How to Have an Epic Retirement. She writes a weekly newsletter at epicretirement.net and is host of the Prime Time podcast.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making financial decisions.
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