how to choose a retirement age

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Many young professionals, full of enthusiasm for their chosen career fail to see any appeal in planning to retire early. A lot can change in the next 20 years, your 50-year-old self would love you to consider why you may want to retire early. But your health is not guaranteed to last, your workplace may become toxic or you may have developed different priorities. Planning in case you would like an early retirement age gives you options, choice and flexibility.

Choosing a Retirement Age

It’s really difficult being asked to make a financial plan for the rest of your life. Particularly if, you’re 25 and don’t even feel like a genuine adult yet. My view of the future at this stage was pretty hazy, full of possibilities, but no plans set in stone.

Being asked to plan a retirement age at any time under 40 can seem completely overwhelming! But this is kind of an important date to build your financial plans around.

Nothing has to be set in stone, but working towards a goal will give your future self options in whatever situation you are in at the time.

A good place to start is the official retirement age. But what exactly is that? The aged pension can only be received from age 67. Most high-income earners would like the option to retire before then, and would only consider the aged pension as a backup plan.

The preservation age for superannuation is currently set at 60 years old. There are legislative risks with super. It’s a great vehicle for maximising tax efficacy, particularly for high-income earners.

But you should assume the government are going to help themselves to the super cookie jar a few times before you retire. I take advantage of the age gap and put extra super into the older spouse’s super, who is less likely to be affected by changes. I also assume that my preservation age may increase five years before my planned retirement in 2035.

If you would like to retire before your preservation age, you need investments outside superannuation to fill the gap.

Why You May Want to Choose an Earlier Retirement Age

1. A Health Crisis May Cause You to Retire Early

No one knows what health challenges are around the corner. We all hope to be the 90-year-old still running marathons, but it seems prudent to plan for the worst, whilst hoping for the best. Life-threatening illnesses occur without warning and can be devastating to your finances. Reduce the risk of something like this destroying your plans in your 50’s and 60’s. Income protection gets VERY expensive by this age! Chronic disease also involves a lot of time away from work for doctors appointments, tests, rest and recuperation. As a doctor, I sadly see many patients who can’t afford to take the time off to manage their condition properly.

Even without a health crisis, ageing well requires good maintenance and preventative care regimen. Regular exercise (including stretching), a healthy diet and plenty of rest become more critical as we get older. Less (or no) time spent at work allows retirees to focus on these things if they are motivated to do so.

2. You May Crave an Earlier Retirement age as You No Longer Enjoy Your Work

This may not be a reason to retire as much as move jobs, but people often get stuck in the “golden handcuffs”. Having a perfectly good, well-paying job that you hate doesn’t really sound like something you can complain about.

But people who were once passionate about their careers often end up dissatisfied by mid-career. There may be a loss of interest over time, a change in the work to be done, a toxic workplace or a terrible new boss.

Their high-level expertise may seem completely irrelevant outside their current career. To leave the now resented career would therefore involve a drastic pay cut. Many have trapped themselves with an expensive lifestyle that requires their current income.

Hopefully, you enjoy your work right now, but this can change pretty quickly. Perhaps the work you do deviates from the work you intended to do. Doctors spend at least as much time now completing documentation and paperwork as seeing patients.

People change. Think back to 10 years ago. Are you the same person as you were then? It’s hard to imagine what interests and preferences you may have in another 10, 20, 30 years. Keeping options open for change is a big part of managing your finances well.

Getting ahead with your retirement savings, having accessible cash savings and a good surplus of income could enable you to take the leap to a new job or career when your dream job becomes a nightmare.

3. Retire Early Because You Have a New Passion

Perhaps you don’t hate your old job, but find a new purpose in life. You are dying to become a professional writer, want to volunteer overseas providing aid work or want to start that dream business. Planning for an early retirement allows you to take risks, or work for free.

4. Choose an Early Retirement Age Because You Want More Time

Modern life can turn into an endless “to do” list, errands obligations consume your days, leaving little time for fun. Full retirement is the opposite, with acres of hours to do all the things you never had time for. Writing that book, learning an instrument, pottery, surfing. The only limit is your imagination! And your finances, of course.

Perhaps you would like to take extra weeks holiday to spend a holiday where you’re not trying to squeeze everything in. After retirement you can holiday for as long as you like.

5. You Want More 8Freedom

I think what appeals to most people about retirement is the freedom to do whatever you want. No need to get up at a certain time (unless you want to). No need to drive in rush hour or in an office for an arbitrary amount of hours (regardless of the amount of work actually done).

Not needing to be commute to work means you can live anywhere you like. The freedom to travel wherever for however long, with needing leave approval is also appealing (although currently not relevant!)

6. You want to Retire Early to Lead a Simpler Life

Some crave to get back to a simple life, and retirement offers this possibility. No deadlines, or boss to impress. You create your own routine for every day. You have the time to spend on the important things.

7. You Want to Enjoy Spontaneity

Without work commitments, you are free to take advantage of amazing opportunities at late notice. A late travel deal or sudden whim to visit friends?

8. You Want to Retire Early to Sleep and Have a Regular Routine

A regular routine of sleep, exercise and food make a huge difference to how well you feel. As a shift worker, I do sometimes find myself craving a life where I could go to bed at a reasonable hour and wake refreshed every day.

9. You Want More of a Social Life

You only have to observe the grey nomads appreciate what an insane social life these guys have. They meet friends on their travels around the country, seem to instantly form a bond and party late into the night. Rather than appreciating their ability to go to bed at a reasonable hour and wake refreshed, these party animals socialize into the early hours and presumably wake with a hell of a hangover!

Rather than make excuses for every other social event you are invited to due to work commitments, you can travel to see friends and family whenever you like. And if you want to stay up late, there is no work the next morning to interrupt your lie-in.

10. Choose an Early Retirement Age So You Can Help More

You may have friends, family or your favourite charity that you know need your help. Being retired means you can contribute to what you feel is meaningful, despite a potential complete lack of financial compensation.

Why You May Not Want to Retire Early

1. Early Retirement Can Be Bad for Your Health.

Retirement can be good or bad for your health. Some studies have shown a physical deterioration in physical health after retirement, others an improvement. Mental health seems to improve short-term as a result of retirement, but involuntary retirement is often bad for physical and mental health.

It seems likely the effect of retirement on your health is very individual. Stopping work and not replacing it with meaningful busyness and physical activity is a recipe for disaster. Moving on from a stressful work environment to focus on your passions and keeping active, social and motivated sounds highly therapeutic.

2. Running Out of Money

This is the other huge fear that haunts retirees. The problem is, there is never a guarantee that your savings will last.

The earlier you retire, the longer your investments need to fund your lifestyle. Luckily we have in Australia the aged pension as a safety net.

Continuing a little paid work or renting can provide a small amount of ongoing income. Even a small amount reduces the risk significantly of drawing down your super completely, and provides more options to get back into the workforce should financial disaster strike.

Should You Choose an Early Retirement Age?

Taking the leap from full-time work to full retirement is a huge shock to the system. It’s hard to be realistic about retirement expectations, and most people tend to look at it through rose-tinted glasses.

You may think you will exercise every day, cook delicious and healthy meals and actively seek a busy social life. In reality, the days may blur into one as you stare at screens and eat junk.

The loss of purpose seems to be a thing retirees struggle with, and probably why involuntary retirees suffer the worst.

Before jumping ship, retirees should clearly have a plan of what their new life purpose will be. Just because you’re not getting paid doesn’t mean you should do nothing!

A gradual ease into retirement is probably kinder for all involved, although will be easier in some occupations than in others. Gradually reducing working hours whilst increasing hobbies, social activities and exercise seem the healthiest option.

What Retirement Age Will You Choose?

I would urge you to select an earlier theoretical retirement age to work towards. Having the money ready to go gives you lots of options of retiring, changing work or continuing to work in a job you love.

Not having the money can leave you in a miserable situation if you get to your 50’s and want (or need) to retire. Starting early means the sacrifice is actually very small, as you are taking advantage of compound interest.

Aussie Doc is working towards a theoretical retirement age of 55. What is your maybe retirement age?

Aussie Doc Freedom is not a financial adviser and does need offer any advice.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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