Making the leap to retirement - what you should know

Making the transition from one type of living to another is never easy. Often, it involves jumping from one side of the spectrum to the polar opposite, and in a short period of time, which can put a lot of strain on the human mind and body.

This is no less true when it comes to retirement. When you retire, you’re not only going from a mindset of working nine to five, five days a week to a completely clear schedule, your financial situation is also likely to change significantly. You’re no longer living off a regular pay cheque, but rather what’s built up in your savings account or superannuation fund. 

In order to make the jump from work to retirement, you need a conscious strategy. Here are a few of the strategies you can take to ensure you have a successful changeover to retirement.

Decide what kind of life you’re going to live

Everyone has a vision of what their retirement will be like, and it usually happens to be a stock image of leisure-filled bliss. However, in order to make sure you adequately transition to your new state, you need to get specific. That means sitting down and properly working out the kind of lifestyle you’re going to maintain. 

If you need a finger to be pointed in the right direction, the Association of Superannuation Funds of Australia (ASFA) publishes its retirement standard — or the amount of income you need per year for a particular type of retirement lifestyle — every quarter. They provide the cost of various expenses, such as health care, groceries and even hair dressing. 

The point is to work out which of these you’re going to decide are essential — and which you could go without — in your new life. For instance, are you going to eat out regularly? If so, how regularly, and what calibre of restaurants? Do you still want to vacation? If so, where and how often? It’s similar to drawing up a monthly budget, except you’re taking into account the rest of your life. 

Work out how far your retirement savings will go

Connected to this is actually taking a look at how much is saved up in your savings account, super fund or whatever else you’re using to plan for retirement. Take the total sum you’ve accumulated, or perhaps how much you’re aiming to accumulate, and divide it by a certain number of years to see how much yearly income you might have to spend. You could use the Australian Bureau of Statistics’ list of life expectancies as an indicator of how long you’ll need to rely on your retirement savings. 

This won’t give you a pinpoint accurate picture, but it could help you get an idea of how far your savings will go. If you’re prepared in advance for how much — or how little — you’re able to spend every year, you won’t be hit with any unpleasant surprises when you are finally ready to hang up your hat. 

Make use of a Transition to Retirement strategy

There is actually a government superannuation rules that are all about helping you make a smooth transfer from your working life to your golden years. While earlier, Australians could only access their super once they genuinely retired or turned 65, under the transition to retirement rules, you can start working less and relying partly on your super income when you reach your preservation age. For those born after July 1 1964, this is 60. 

These payments come as a regular payment rather than a lump sum. They can help you gradually scale down your working hours, plus help you get used to living on your retirement funds. All of this can help the ultimate jump to retirement feel like less of a shock. 

If you combine this strategy with salary sacrificing to boot, you could end up financially better off, too. Reducing your take-home pay while putting money away in your super directly from your pay cheque can give you significant tax savings. 

Advice contained in this article is general in nature and not specific to your particular circumstances.  Before making an investment decision you should consider your own financial situation and the relevant Product Disclosure Statement/s.  We also recommend you seek advice about your own particular circumstances from a licensed financial adviser.

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