While the majority of Australians will retire in their 50’s or 60’s – with access to the pension at 65 and a half (rising to 67 in 2023) – there is no fixed retirement age.
This means you can potentially retire whenever you want. Early retirement is considered by many to be leaving the workforce at roughly 55. And while most people don’t end up doing this, there are people who get their finances in order and leave the workforce for good in their 50’s or even 40’s.
Unless you are lucky to have full pension and benefits, your retirement age will likely be older than these early retirees. And in these cases you might be thinking that early retirement would be more enjoyable.
You might be surprised at what early retirement actually entails.
Early retirement means considering major aspects of your life and how they’ll be impacted by this change, like your:
Don’t just plan your retirement, plan your life!
Before you look at early retirement, you need to look at these five reasons why leaving the workforce for good may not be as beneficial as it sounds.
#1 – Insufficient Savings
If you’ve started a family late then your financial obligations will extend further into your life.
This means, as you reach retirement age, you may still have children in university or just getting started in life.
You may also have elderly parents who need help with bills, mortgage and credit card debt that you may have to take care of.
If you are planning to stay in your current home after your early retirement and maintain your standard of living, you need to take a hard look at your finances and come up with a plan.
You need to consider all your expenses and the size of your financial cushion before you decide to retire early.
The accounting experts at Robinson Accounting explain that not having enough money for retirement is a problem that plagues a lot of older Australians. They note that “it takes some planning to retire with enough money to last 30 or 40 years, and it’s important to start early to reduce the stress when retirement finally comes around. The big question you need to be asking isn’t at what age you want to retire, it’s at what income”.
Takeaway: Retiring early places pressure on your finances and without professional support you may find you have insufficient funds to maintain your standard of living.
Looking to learn more about your financial options? Chat to the experts from Wealth Path today!
#2 – Loss of Living Standards
Living longer may be beneficial for your own personal gain. But it’s not great if you can’t afford to maintain the standard of living you’re used to.
If you have a family history of good health and you have looked after yourself through exercise and a healthy diet, you could live longer than expected.
In Australia, the average life expectancy sits at 80.5 for males and 84.6 for females born between 2015-17.
When you think about it, that’s an extra 30 years you need to compensate for when deciding to retire early.
That’s why you will need to factor your life expectancy into your retirement plans.
While living a long and healthy life is a goal we all try to achieve over the years says Melbourne brain health expert Janine Brundle, this needs to align with financial health too. She explains that “your retirement years are your prime years to enjoy the life you’ve built so far. It may seem like a timeline now but take the time to enjoy what you’ve earned but keep in mind, ageing comes with more responsibility. Your physical health should always match financial health too”.
#3 – Increased Mortality
If you take early retirement, it will last for longer. That feels like a huge win.
However, during your long retirement, a lot of things can change.
While some things will turn out better, other things may turn out worse. The problem is that you have no way of knowing what will happen or what the balance is going to be.
According to some studies, working a year longer over the age of 65 can reduce your mortality risk by 11%. This is why you need to think twice about early retirement, especially when it is only just viable based on optimistic assumptions.
You need to plan for the worst in some cases, and consider all factors such as:
- Family Emergencies
- Loss of Income
#4 – The Point Of No Return
Retiring means leaving the workforce completely for some. You might decide to get back into something less permanent. But returning to work will be a challenge after many years away, especially if you are seeking full-time employment again.
With the rate of unemployment for younger people so high, it becomes a lot harder for those of an older age to enter the workforce after retirement.
When you are over 50, finding new employment can be hard whether you retired or were let go and it is likely to pay much less than the one you left for retirement.
Leaving work is a huge decision, especially when planning your future.
Carefully consider your factors, can you survive leaving immediately or could you step down to a less full-time position to set yourself up further down the track?
Retirement in general can be both daunting and exciting says physical health expert Jacqui Herrman. She explains that “if you’ve been working for 30-40 years in the same industry, early retirement can take a turn for the worse financially. Consider the fact of stepping down and phasing out while focusing on your health goals too rather than stopping immediately. This helps prepare for the lifestyle and financial changes you will be facing going into retirement”.
#5 – Boredom
If you’ve been in the workforce for a long period of time, retiring early will leave you a little out of balance.
You might find it more difficult than you thought to make the changes needed to adjust to your new daily routine.
The move from structured work-life to unstructured retirement can be hard and many people miss their routine and want to return to the workforce.
The problem is that this is not easy once you’ve left your job.
There is also the chance that you want to work longer to extend your life through mental and physical stimulation. For many people, early retirement offers the promise of free-time, and the reality that free time needs to be filled.
It is better to take the time to stress-test your plans. You need to look at what will happen under the worse conditions. Your retirement plan should have some flexibility and a financial cushion.
This will help you through the hard times and the bad things that life throws at you.
Are you looking to make a decision regarding your retirement? Don’t act without all the facts. Chat to a Wealth path expert on 07 5444 0675 today!