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A lot of people enjoy their work, but for those that don’t, or at least those who would prefer to be not clocking on everyday, the prospect of early retirement appeals greatly. It is estimated that Australians have about $3.3 trillion in their funds, making superannuation the key to a financially comfortable retirement for many of us.
Age 60 tends to be the most commonly cited age for early retirement. That may be due to the fact that most Australians can access their superannuation tax-free once they turn 60 and stop working, or it may just be an age that people believe is a good time to leave the workforce while they’re still relatively fit and healthy. It could also be both.
I fall into the first category. I am a financial writer specialising in superannuation, so when I first learnt about the tax-free status of superannuation at the age of 60, I started to crunch some numbers to discover whether it was going to be a viable option.
It turns out that writing about superannuation, while not overly lucrative in itself, has provided some background knowledge that has helped boost my retirement savings balance.
At various stages of my working life I have salary-sacrificed on the premise that it was difficult to suggest other people to do it if I wasn’t doing it myself. The goal may have been to set a good example—and the amounts at the time were not large—but the closer I get to retirement, the more I can see how the magic of compounding interest has worked in my favour.
Of course, there is no one set path that is right for everybody. Not only does life change, but super changes too. On February 28, for example, Treasurer Jim Chalmers announced that Australians who have more than $3 million in their super accounts, around 80,000 people, will not benefit from the 15% concessional tax rate for contributions, but instead will face a higher tax rate of 30% in July, 2025. This, of course, affects a small portion of the population, but it seeks to highlight that your plan to early retirement will need constant revisions and will be far from a set-and-forget path.
Related: Switch or Stay? How to Deal With An Underperforming Fund
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How I Plan to Retire at 60
As mentioned above I have been salary sacrificing small amounts over the past 15 years. It has never been more than 5% of my salary, but it has been helpful to set it at a percentage which means the amount increased whenever I was fortunate enough to receive a pay rise.
In addition to salary sacrificing I have also made after-tax contributions to superannuation whenever possible.
The end result is what (I hope) will be a decent but not necessarily ‘rich’ superannuation balance when I reach 60 in a few years. I will use that balance to fund my lifestyle until my pension eligibility age—which I hope will not change from the current age of 67—at which point I will be able to take a combination of super and pension as long as I continue to meet eligibility requirements for a part pension. Surprisingly, many people with decent superannuation balances will still be able to receive some part-pension in their retirement.
By also paying off my mortgage and not having any debts by the time I reach 60, I will greatly reduce costs heading into retirement.
How You Can Retire at 60
There is no one way to retire early, and everyone will have their preferred strategies, but here are three things that will definitely have a positive impact on your super balance.
Salary Sacrifice (Even Just a Little)
Whatever age you are—but the younger the better—consider salary sacrificing a little bit extra into superannuation each month. It doesn’t matter how small the amount, if you can start the habit and set a percentage rather than a dollar amount, your retirement balance will thank you.
The current superannuation guarantee is 10.5%, but adding a little bit more can make a huge difference over time, potentially adding hundreds of thousands to your final super balance. How? First of all, you benefit from compound interest and secondly you have the advantage of generous tax breaks as the Federal Government currently allows employees to contribute up to $27,500 (including their SG) into their super at a low tax rate of 15%.
Whatever age you are—but the younger the better—consider salary sacrificing a little bit extra into superannuation each month
Read more about salary sacrificing in our guide.
Make Non-Concessional Contributions
If you are lucky enough to come into an inheritance or another financial windfall, consider making an after-tax contribution to superannuation. You may even be able to roll up three-years’ worth of contributions into one year. Of course, as mentioned above, from July 1 2025, the rules are slightly less generous for those with more than $3 million in their super funds, in which case a 30% tax rate, rather than 15%, will apply.
Pay Off Your Mortgage
I realise this is a huge ask especially in the current interest rate environment but the smaller your mortgage is by the time you reach retirement age, the better off you’ll be. You’ll also avoid the temptation to use your super lump sum to pay off your mortgage, which can whittle down your retirement savings further.
If your house is too large for you, and your kids have flown the coop, you could also consider downsizing to a smaller and cheaper home.
What If I Am Falling Short?
Good news: there is one significant change that has happened under the Albanese Government that can help people aged in their mid-fifties and older who feel their superannuation balances are falling short.
Since 1 January this year, people over the age of 55 have been able to contribute up to $300,000 from the proceeds of the sale of their homes into their superannuation funds. The $300,000 does not count towards any of the contribution caps (read more about eligibility criteria here). Previously you had to be at least 60 to access the downsizer contribution.
If you’re able to sell a large family home and move into something smaller, or potentially just cheaper, a tree change from a major capital city for example, a $300,000 contribution could be just the extra boost your super needs.
When Can You Draw on Your Super?
Under very limited circumstances you can access your superannuation before you reach preservation age (which is 60 for most of us). Read our guide to the early release of super.
Most of us need to reach ‘preservation age’ and meet a condition of release to draw on super. The ATO outlines the conditions of release as:
- reaching your preservation age and retiring;
- reaching your preservation age and choose to begin a transition to retirement income stream while you are still working;
- Becoming 65 years old (even if you have not retired).
Of course, during the pandemic, the then-Coalition Government created controversy when it allowed young Australians to access $10,000 of their super to prop up their savings. Some $36 billion has been drained from Australians’ collective super accounts as a result, and the Albanese Government has voiced its opposition to superannuation being used in this way.
The advice and information provided by ForbesAdvisor is general in nature and is not intended to replace independent financial advice. ForbesAdvisor encourages readers to seek expert advice in relation to their own financial decisions and investments.
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Frequently Asked Questions (FAQs)
How much super do I need to retire at 60 in Australia?
This obviously depends on what annual income you want to fund but if you want to be able to afford a comfortable retirement—which is an income of just over $48,000 a year for a single according to the ASFA Retirement Standard—then you need a balance of at least $500,000.
This also assumes that you will be eligible for a part aged pension once you reach pension eligibility age, which a large majority of Australians will be and that you own your home.
These figures have been calculated using the Australian Securities and Investment Commission’s Moneysmart Retirement Planner.
How much do I need to retire on $100 000 a year in Australia?
A super balance of $1.9 million will get you almost to $100,000. But that still allows for a small part-pension once you whittle down your superannuation balance into your 80s. $1.9 million is also the new transfer balance cap amount from 1 July 2023, which is the limit on how much you can transfer into tax-free retirement phase income streams.
These figures have been calculated using the Australian Securities and Investment Commission’s Moneysmart Retirement Planner.
What are the new changes to superannuation?
On February 28, 2023, Treasurer Jim Chalmers announced that those with super fund balances of more than $3 million, about .5% of the eligible population, will not be entitled to the generous 15% tax rate for concessional contributions. Instead, from July 1, 2025 they will be taxed in their returns at a higher rate of 30%. Those with balances of less than $3 million will continue to be eligible for the 15% tax break.
