7 signs you may not be ready for retirement

Key takeaways

  • Having a clear picture of your financial situation, can help you determine if you’re ready for retirement

  • If you expect to go into retirement with debts, it’s important to work out your capacity to service those debts in the absence of a regular salary

  • Consider if you’re emotionally prepared – retirement is a large transition and can be a confronting adjustment.  

It’s fair to assume that most people who’ve been working for 30-40 years look forward to retirement. A chance to finally take it easy, more time with family and friends, more time for hobbies, perhaps a lot of travel.

However, without a solid financial foundation, rather than retirement being something to look forward to, it could be a source of stress. It’s the last thing you need when you’ve been doing the hard yards for a long time.

So, here’s a 7-point checklist to help you think about whether you’re ready for retirement.

1. Do you have a clear picture of your financial situation?

Most of us are likely to earn less from a combination of super, and non-super investments and savings than we did while we were working and earning a salary.

With that in mind, you can determine if you’re ready for reitrement by working out how much you’re likely to earn from your super (and any other investments and savings you may have), compared to your expenses.

Investment returns, including from your super, can vary from year-to-year, so it’s important to be realistic when doing your calculations and making assumptions on potential future investment returns.

It’s also a good idea to work out how long your super and non-super investments may last in retirement. 

According to MoneySmart, one way to estimate how much you’ll need is to use the two-thirds rule. This suggests you’ll need around two-thirds of your current income each year to maintain the same standard of living in retirement.

Alternatively, the Association of Superannuation Funds of Australia (ASFA) has put together a Retirement Standard which you can use to estimate how much you’ll need to live once you retire.

2. Have you tried to live on your retirement income?

‘Trying before you buy’ might be a good way of seeing whether you’re ready for retirement. In this case, try to see if you can live on your estimated retirement income for a while and see how you manage.

This trial run can help you gauge whether your estimated retirement income is enough for you to enjoy the lifestyle you want over the long-term.

If it turns out that your retirement income is unlikely to be enough, you can take action to grow your super. 

3. Will you be carrying debts into retirement?

If you expect to go into retirement with debts, maybe a little bit left on your mortgage, it’s important to work out your capacity to service those debts in the absence of a regular salary.

If you think that debt management may be a bit of a challenge, a financial planner may be able to help you develop a debt reduction strategy.

4. Have you maximised your super?

Super is the largest financial asset many Australians have after the family home,1 but do you have enough in super to fund the lifestyle in retirement you want? This is a key factor in determining if you’re ready for retirement.

It’s never too early or too late to grow your super and there are multiple strategies to build up your super balance.

You can also speak to a financial adviser about super contribution strategies.

5. Have you considered how your needs might change in retirement?

Transitioning to retirement and life in retirement aren’t fixed. Your needs and circumstances are likely to change as time progresses.  

Healthcare expenses, whether for preventative care or higher annual private insurance premiums, for example, should be factored into your planning.

6. Are you emotionally prepared for retirement?

The first five items on this checklist deal with financial issues related to being ready for retirement.

But there’s more to retirement planning than your finances.

Retirement is a large transition, separating you from a life to which you’ve devoted decades. For some retirees, this can be a confronting adjustment. Sometimes, there are regrets over retiring.

In Australia, there’s no compulsory retirement age. There is an age at which you’re eligible for the Age Pension, but that’s a different matter.

Some people want to keep working even when they’re older. It’s understandable why.

Working has benefits beyond the financial. A job you enjoy, whether full-time or part-time, engages your mind, offers social interaction, gives your days purpose, and creates a sense of accomplishment.

All these things can help you stay healthy and happy as you age.

The Australian Government has policies in place to assist older Australians to work, if they are able and wish to do so. Seniors may have substantial income from work and still receive an Age Pension. Age Pension rules provide incentives for work, including part-time or casual work. 

7. One more thing

Perhaps the biggest sign that you may not be ready for retirement is when you can’t answer the question: “Am I ok to retire.”  

Retirement is one of life’s major life transitions requiring preparation and planning.

Sitting down with a financial adviser can help you answer the financial aspects of the retirement question, including working with you to develop investment strategies that can meet your long-term needs, creating a plan to pay down any debts you may have, as well as evaluating your expenses.  

Speak to us on 02 9554 3566 to learn more about how we can help.

1 Superannuation measures. Australian Government, The Treasury, 19 October 2015, https://treasury.gov.au/publication/government-response-to-the-financial-system-inquiry/superannuation-measures accessed 11 March 2021.

Source: MLC July 2021

Important information and disclaimer
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. The information in this article is current as at June 2021 but may cease to be accurate in the future.

NULIS is part of the group of companies comprising IOOF Holdings Ltd ABN 49 100 103 722 and its related bodies corporate (IOOF Group).

Opinions constitute our judgement at the time of preparation. In some cases information has been provided to us by third parties and while that information is believed to be accurate and reliable, its accuracy is not guaranteed in any way.

To the extent that the information in this article is or contains advice, it does not take into account any particular person’s objectives, financial situation or needs. Before acting on the information, you should consider the relevant Product Disclosure Statement, consider the product’s appropriateness to you having regard to your personal objectives, financial situation and needs, and consider obtaining independent advice. The Product Disclosure Statement for the MLC Super Fund is available at https://www.mlc.com.au/personal/superannuation/products or can be obtained by calling 132 652 (Monday to Friday between 8am and 6pm AEST/AEDT). Returns are not guaranteed and past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the IOOF Group accepts responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.

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