When should I retire?

No, there is no set retirement age in Australia nor a legal requirement to stop working. There is, however, a certain age you can access your super and the Age Pension if you’re eligible (which we’ll get into later). 

When you choose to retire is up to you, unless you’re forced to leave the workforce early due to redundancy, poor health or a lack of job opportunities.

Ultimately, the best time to retire comes down to personal circumstances.  

If you have a choice as to when you retire, you should do so when you’re ready to stop working and have the resources you need to support your post-career life.

While the average age Australians intend to retire is 65.5 years, according to the Australian Bureau of Statistics, this may be sooner or later depending on your situation.

When you choose to retire is a personal decision that will depend on a range of factors. Some things you might want to consider when deciding whether or not to retire yet include: 

• if you have any assets, including a home, savings, and investments outside of super
• if there’s any healthcare you need to pay for
• how much you spend annually
• how much you’re willing to dip into your savings
• if you’ll be able to access the Age Care pension
• whether you want to sell your house and downsize
• what kind of lifestyle you want to live in retirement. For example, do you intend to travel or take up new hobbies?

There’s no magic number when it comes to how much money you should have stashed away for retirement. However, there are some guidelines that may be useful in setting a benchmark for yourself, so you can enter retirement with confidence that you’ll live comfortably.

According to Australian Securities & Investments Commission (ASIC)’s MoneySmart, one way to figure out how much you’ll need for retirement is using the ‘two-thirds of your income’ method. This method assumes you would need 67 per cent of your pre-retirement income to maintain the same lifestyle you’re living now. It’s also only suitable for above-average income earners, according to MoneySmart.

If you use the two-thirds method, it’s important to take into account that while you may no longer need to pay for some work-related things, such as commuting to work, you may still need to pay for other things such as travel, hobbies, aged care support, and medical bills.

Another way to determine how much money you’ll need to retire is following figures set out in the Association of Superannuation Funds of Australia (ASFA)’s Retirement Standard. This is a quarterly publication that recommends the annual budget needed by singles and couples to fund either a modest or comfortable retirement.

As per their December quarter 2021, ASFA says a single person around 67 years of age would need $29,139 per year for a modest lifestyle and $45,962 per year for a comfortable lifestyle. Couples would need a combined income of $41,929 for a modest retirement and $64,771 for a comfortable one. Importantly, these benchmark numbers assume the retirees own their own home and are relatively healthy.

The ASFA defines a modest retirement lifestyle as slightly above what someone relying solely on the Age Pension could afford but it would still only cover fairly basic activities. On the other hand, a comfortable retirement lifestyle allows a retiree to maintain a good standard of living, covering daily essentials, a range of exercise and leisure activities, the occasional restaurant meal, electronic equipment, domestic travel and the occasional overseas trip.

ASFA’s estimations don’t stop there; they also suggest how much you should have in your super, whether you’re single or have a partner. 

According to ASFA, singles planning for a comfortable retirement will need $545,000 in super, while couples will require a combined balance of $640,000; however, this assumes that retirees will draw down all their capital (e.g. any shares or other investments) and receive a part Age Pension. For a modest retirement, singles and couples would only need a much lower $70,000; this figure is relatively low because the base rate of the Age Pension (plus various pension supplements) should be sufficient to meet much of the expenditure required at this budget level.

According to the Australian Taxation Office (ATO), you can start withdrawing from your super once you reach your ‘preservation age’ (between 55 and 60 depending on when you were born) and either retire or begin transitioning to a retirement income stream while working.

Here’s preservation age based on date of birth: 

Source: Australian Taxation Office (ATO)

You can also start taking money out of your super if you’re 65 years old (even if you aren’t retired). Additionally, if you meet special circumstances, such as severe financial hardship, you may be able to access your super sooner.

If you’re eligible, you may be able to secure a full or part Age Pension if you’re of Age Pension age. Currently, the Age Pension age is 66 years and 6 months for people born between 1 July 1995 and 31 December 1956, inclusive. If your birth date falls on or after 1 January 1967, you’ll have to wait until you turn 67 (this will be the Age Pension age from 1 July 2023). 

To access the Age Pension, you’ll need to be an Australian resident, normally for at least 10 years, and meet the income test and asset test (which will determine how much you can get).