How to measure the financial impact of delaying retirement

If you’re thinking of retiring soon you might be wondering about the difference a few extra years in the workforce could make. Should you stick it out a bit longer, or focus on saving as much as possible now and plan to stop work sooner?

Timing your retirement is not a simple decision, so read on to discover the factors you may need to think about.

Benefits of delaying retirement

The downside of putting off retirement is clear – you spend longer working, and less time enjoying your retirement! Even so, there are some good reasons working longer might be worth considering.

The longer you remain employed, the more time your super and other savings have to accumulate before you start drawing retirement income.

At the same time, the nest egg you need will be smaller because you won’t need to finance so many years in retirement. If you’re concerned you haven’t saved enough, staying in the workforce a little longer might be just the ticket.

If you’re likely to be eligible for some Age Pension, it could be worth continuing to work until you reach your Age Pension age, which increased to 67 from 1 July 2023.

If you’re close to your pension age when you retire, or better yet have already reached it, you’ll minimise the amount you need to draw from your own savings while you’re waiting for your entitlements to come through.

The alternative – saving more to retire sooner

If staying at work doesn’t appeal, but you’ve got some extra to save, a savings sprint before retirement could give you the boost you need.

You could be eligible to contribute more than the usual contribution caps using carry-forward concessional contributions or the bring-forward rule for non-concessional contributions.

The more you can accumulate in the concessionally taxed super environment the longer your savings should last. After retirement, super savings that you have converted into an income stream earn tax-free returns, boosting your investment return compared with investments outside the system.

How long could retirement be?

No one likes to think about their own mortality, but it’s essential to consider how long you might live to estimate the time your retirement savings need to last. Australians are living longer and healthier lives than ever, so your retirement might be longer than you think.

While retirement at age 60 is a popular goal, today’s 60-year-olds could end up living almost as long in retirement as they spent in the workforce. That’s a long time to expect your savings to last.

A long life expectancy could be a good reason to keep working for more years than you originally planned. The LifeSpan calculator provided to SuperGuide readers by Optimum Pensions is a comprehensive tool you can use to estimate the length of your retirement.

The next step is to work out how far your savings are likely to stretch, given your preferred retirement age and financial situation.

Case studies

Roberta

Roberta is single, 55 years old, has $250,000 in super and earns an annual salary of $90,000. She is considering working until 67 but has recently paid off her mortgage and could afford to save extra in super if it would help her retire sooner.

Roberta decides to compare what her retirement may look like in two scenarios.

1. Salary sacrifice $1,500 per month ($18,000 per year) and retire at 62
2. Make no additional super savings and retire at 67

In the second scenario, Roberta would plan to use her extra saving capacity to help her daughter with debt instead of contributing to super. Using TelstraSuper’s Retirement Lifestyle Planner we can model the outcomes. This tool generates results based on variable investment returns to arrive at a probable result. We have used the default ‘highly likely’ confidence level that displays figures that would provide the set income until 92 in 80% of cases.

	Contribute and retire at 62	No super contributions and retire at 67
Estimated final super balance	$418,773	$408,430
Estimated retirement income using 100% account-based pension*	$45,600	$51,150

Results from the TelstraSuper Retirement Lifestyle Planner December 2024 using default assumptions

* Estimated retirement income to age 92 including Age Pension entitlements. This and other assumptions about fees and investment returns, whether you will invest part of your balance in a lifetime pension, and your desired probability that your income goal will be reached can be altered to align with your personal circumstances and preferences

Roberta is interested to see that her final super balance is predicted to be higher if she contributes and retires early, but her retirement income will be lower. This is because the balance needs to last five years longer and she will be fully self-funded for five years until her Age Pension kicks in.

According to the modelling, working longer has such a powerful effect that it outweighs the benefit of $126,000 of additional contributions over the seven years leading up to early retirement.

If Roberta were to make additional contributions AND work to age 67, her retirement income would be even higher. It all depends on how much you think you will need to live well in retirement and your more immediate financial priorities.

Yanjing and Adam

Yanjing is 50 and her husband Adam is 57. They would like to retire in 10 years’ time. They’re both currently working full time earning salaries of $80,000 per year, have equal balances in super of $300,000 each and both contribute 10% of their income to super by salary sacrifice.

The couple want to be comfortable in their retirement and plan for a long life. They’re willing to consider working part time three days a week for five additional years after their planned retirement date, living on their reduced part-time salaries during this time, if it will have a significant impact.

We have again completed modelling using TeltraSuper’s Retirement Lifestyle Planner, with a target of income continuing until Yanjing is 95 and Adam is 102.

	Retire fully in 10 years	Work part time for an additional 5 years before drawing on super
Estimated final super balance (combined)	$1,081,218	$1,307,294
Estimated retirement income using 100% account-based pension*	$80,000	$94,000

Results from the TelstraSuper Retirement Lifestyle Planner December 2024 using default assumptions

By working part time for an additional five years before starting to draw on their super, Yanjing and Adam are estimated to retire with more than $225,000 extra saved, generating $14,000 a year more in retirement income.

Including income for life

Since the couple are concerned about living long lives, they are also interested in investing some of their super in a lifetime pension.

TelstraSuper’s Lifetime Income Calculator indicates that if they followed their strategy of working part time for an additional five years and invested 35% of their combined balance in a CPI-linked lifetime product at retirement, they could generate income of $94,000 per year until Yanjing is 83 and Adam is 90. After this time, they could expect income of just under $51,000 a year for life, no matter how long they live – a safety net made up of the Age Pension and their lifetime pensions. The Age Pension alone would provide just under $44,900 per year and fewer comforts.

The lifetime pensions modelled include a ‘survivor benefit’, meaning that if one member of the couple passes away, income will continue to be paid to the surviving spouse from their lifetime pension.

Lifetime pension calculation using TelstraSuper Lifetime Income Calculator December 2024 with default assumptions.

The bottom line

Timing retirement is a very personal choice, and not always in our control, but estimating the length of your retirement and doing some modelling is a good place to start.

Delaying retirement can help if you haven’t managed to save the amount that would make you comfortable, or a final savings sprint could allow you to make the transition sooner. A combination of both strategies (delaying retirement and boosting contributions) would be even more effective, so be sure to crunch your numbers before making a final decision.