What age should I retire?

The decision about when to retire is rarely made overnight. It’s a major life event and deserves careful thought and planning.

Finances play a big part, but so do your health, your partner’s circumstances and whether you still enjoy your work or are itching to leave.

Sometimes the choice is made for you. Redundancy, ill health or a lack of job opportunities might force you to leave the workforce earlier than anticipated.

For those who do have a choice, you can retire whenever you wish provided you have the financial resources to support the life you want to lead in retirement. That’s because there is no such thing as retirement age in Australia, and no legal requirement to stop working.

Access to super and the Age Pension

When people ask, ‘When can I retire?’ or ‘What age can I retire?’, what they often mean is when can they access their super or the Age Pension. The age rules for each are different, which no doubt causes much of the confusion.

• Preservation age: This is the age when you can access your super provided you have also met a condition of release such as retiring. The preservation age has been increasing progressively from age 55 to 60, depending on your date of birth. Even if you don’t wish to retire, once you reach preservation age you may be able to access part of your super and continue working full or part time by starting a transition-to-retirement pension (TRIP, also known as a transition-to-retirement income stream, or TRIS).
• Age Pension age: This is the age when you can access a full or part Age Pension, provided your income and assets are below certain thresholds. The age of eligibility for the Age Pension increased to 67 on 1 July 2023 for everyone born after 31 December 1956. There are no plans to lift the age any further.

The many ages of super

While your preservation age is the earliest you can access super, there are financial incentives to delay retirement until age 60 or beyond.

As mentioned above, you could continue working part time until age 60 and replace some of the lost income with a transition-to-retirement pension. This allows you to preserve most of your nest egg while easing into retirement and developing other interests.

But if you stop work after age 60, you can access your super tax free whether you take it in the form of a lump sum, income stream or a combination of the two.

Once you reach 65, you can access your super even if you haven’t retired. Even then, there is no compulsion to withdraw your super – you can leave it untouched for as long as you like if you have other sources of income. You can also continue making super contributions until you turn 75, whether you are working or not, after the work test was scrapped for all but concessional contributions for which you claim a tax deduction.

Age only part of the story

When it comes to working out the right time to retire, reaching your preservation age or Age Pension eligibility age is only part of the story. Just because you can access your super in your early 60s doesn’t mean you should.

Before you dip into your savings, think carefully about all the factors that might have a bearing on your retirement finances. These include:

• How long you might live. None of us knows the answer to this, but your general health and wellbeing provide a clue, as do population mortality rates. Today’s 65-year-olds can expect to live to an average age of 85 years for men and 87.7 for women, or roughly 20 and 22 years respectively. Many of us will live well into our 90s. So do the math – if you retire at 60 you could potentially spend as much time in retirement as you did in the workforce and run the risk that your money will expire before you do.
• Your retirement income needs. This will depend on the lifestyle you hope to lead and how much it costs. As a rough guide, the ASFA Retirement Standard suggests a comfortable lifestyle will cost today’s homeowner retirees more than $70,000 a year for couples and over $50,000 for singles. Contrast this with the full Age Pension, which is currently around $41,700 for couples and $27,700 for singles. That’s quite a gap that must be filled by super and other private savings.
• Your savings and investments. Australia’s retirement income system is based on three pillars – compulsory employer-paid super, private savings inside and outside super, and the Age Pension. Some say home ownership is the fourth pillar.

Australians are working longer

Australians are staying longer in the workforce, a trend that is likely to continue now that the age at which people can access the Age Pension has increased to 67. The fact that we are living longer and more likely to be asked to foot the bill for aged care services may also explain the trend.

According to the Melbourne Institute 2022 HILDA report, 27.2% of men and 23.9% of women aged 65–69 were still employed in 2020. This is up from 21% and 10.5% respectively in 2001. Note that the rate of working women in this age group has almost doubled.

Looking at the employment rate for people aged 70–74 over the same period, 14.7% of men and 9.4% of women were still working, up from 10.5% and 3.0% respectively. That’s triple the rate for women. 

The average age at retirement of all retirees in 2018–19 (the latest figures available from the Australian Bureau of Statistics) was 55. However, there is evidence that more recent retirees are older. The government’s Retirement Income Review, released in November 2020, found the average retirement age is currently 62 to 65 years, with women tending to retire one to three years before men.

The main reason people gave for retiring when they did was eligibility for super or the Age Pension. However, significant numbers cited sickness, disability or redundancy, and women were more likely to nominate caring for others.

The midlife career switch

Research by Colonial First State (CFS) found Australians aged 45 to 65 would delay retirement for up to 10 years if they were able to switch careers and achieve a better life balance.

The main reason people want to change career, according to the study Unleash your second half: How Australians are reimagining retirement, is to pursue something they are more passionate about (36%), followed by wanting to improve their work-life balance (31%) and earn more money (31%).

CFS modelling found that by taking time off to retrain, then re-enter the workforce in a new role and working longer, people could almost double the super they will have by age 75. They compared the earnings and future super balances of three 50-year-olds, all on annual salaries of $91,000 with $150,000 in super.

• The first follows a ‘traditional’ path earning $91,000 per year until retiring at 65
• The ‘career recharger’ takes two years off to retrain before re-entering the workforce at age 52 in a new full-time career earning $15,000 more ($106,000), working until age 70 or 75
• The ‘work/life resetter’ also takes two years off to retrain before re-entering the workforce part time (three days a week) earning $54,600 per year, working to age 70 or 75.

The table below shows the outcomes for all three. By age 70, the traditional retiree has the least super of the three, even though the ‘work/life resetter’ has been working only part time since age 52. By age 75, the financial benefits of working longer – to 70 or 75 – are clear.

	Super age 50	Super age 65	Super age 70	Super age 75
Traditional retirement	$150,000	$359,000 Retirees	$301,783	$252,961
Career recharger	$150,000	$356,979 Keeps working	$451,322 Retires	$378,477
			Keeps working	$555,895
Work/life resetter	$150,000	$280,503 Keeps working	$338,940 Retires	$284,148
			Keeps working	$403,715

Source: Colonial First State

This modelling is designed for illustrative purposes only. It’s important to do your own sums tailored to your personal circumstances. But the principle holds – working even five years longer can have a powerful effect on your retirement savings.

Money isn’t everything

Money has a lot to do with the timing of retirement, but it’s not the only consideration. While some of us can’t wait to stop work and start ticking off our bucket list, others enjoy the mental stimulation, social interaction and a sense of meaning and purpose that work provides.

Now that Australians are staying fit and healthy for longer, it’s increasingly common for people to continue working part time, act as a consultant or start a small business for the intrinsic satisfaction as much as the income.

So think carefully about how you like to spend your time and how you plan to adjust to retirement. Retirement is likely to be more satisfying if you have developed interests outside work and strong family and social networks.

As you can see, there is no simple answer to the question of when you should retire. If you are thinking about retiring in the not-too-distant future, learn about how to plan for retirement and how much super you need to retire.

Money certainly isn’t everything, but the more financially independent you are the more options you’ll have to decide the timing and circumstances of your retirement.