One narrative we are hearing about and seeing with our own eyes as financial advisers- is the idea that retirement is changing. This article will focus more on the different approaches that clients are desiring with the increasing chapter of the life in mature age.
Firstly – Why is retirement is changing?
Perhaps the biggest trend causing change is the increasing lifespan that people in fortunate countries like Australia are having due to health advancements. Data from the World Bank Group- has Australia in the top 5 countries in the world for longest life expectancy. With that extended time- Australians have more opportunities and so there becomes a diverging ideas on how to spend that time.
Financial factors include more people having debt later in life, working longer to build up required savings or supporting families including extending families- also can influence how people approach retirement and could delay the commencement of a full time retirement.
Lastly- Australians may also choose to keep working longer because they enjoy working and using their skills, to maintain a purpose, or to avoid boredom. Different work types and forms including part time work, working from home, gig economy jobs, online/ remote work, and a move in Australia towards more knowledge workers with less focus on manual work in some traditional industries such as manufacturing- can also see people able and wanting to work longer
Here are three Different Approaches to Retirement we are seeing
1) Traditional Full time Retirement
This is what most people think of when they discuss retirement. You are working (possibly full time) one week and next week you are no longer working. Someone who wants this type of retirement- will answer the question- when do you want to retire with the classic response- ‘yesterday’!
We still find plenty of people who are looking forward to a complete end of work at a certain point- often a certain age/ sometimes influenced by superannuation access ages. Perhaps they have worked in physically or emotionally draining roles. They may not have had the amount of breaks and holidays they would have ideally liked. And a lot of their work career has been a grind of nine to five, shift work or working in remote locations- without the work/life balance that has become more common post pandemic.
In this approach- we need to determine an expected living expense that will be required once the work lever is released and then back calculate. This is made more difficult by the Australian Age pension system- which is the foundation or safety net income which is means tested and needs to be accounted for.
We can then determine the ‘gap’ in capital or save funds that are required at the desired retirement age and implement strategies to close that gap. Then at retirement we combine someone’s retirement savings in the optimal structures taking into account many considerations- so they have a consistent income to live on – no longer ever from paid work again.
2. Transitioning to Retirement
This is an increasingly popular option as it allows someone to gradually reduce their hours of paid work overtime while starting to enjoy more time away from work.
There are non-financial benefits of this as it allows someone to keep working while still saving or at least not fully drawing on their retirement savings yet. It might mean a 4-day week to start with and then reducing the paid work hours over a sometimes 5 even 10 year period.
With the increasing time away from work- this can be used to spend time with a spouse or family, to enjoy hobbies/ leisure activities, to assist with childcare sometimes for grandchildren, or perhaps to volunteer. In some ways it allows a trial retirement with the days off work- to test out how they will live and ensure they are happy with this and are ready to eventually retire.
For people wanting to gradually transition towards retirement- we will determine a desirable timeframe with our clients while maintaining some flexibility as to how long and in what capacity they intend to work. We then devise a plan that ensures their needs are met during their transition phase but also to try and still be building wealth during that phase. Then with a full-time retirement date in mind- we will be working towards ensuring sufficient money is available at that stage when the client is ready to retire.
Working longer while transitioning towards retirement can also enhance retirement savings and increase someone’s superannuation balance. The impact of working longer on super is twofold:
1. continuing to work means new contributions being added to your super/ investments building the balance,
2. And funding living expenses through work means your super fund/investments can continue earning returns with no living expenses being drawn from the balance yet preserving the funds.
There is also a type of superannuation arrangement and accompanying strategies called a transition to retirement pension- which can sometimes be beneficial at certain ages and situations during a gradual transition towards retirement.
3. Achieving Financial Independence- but not Retiring
Lastly- we also meet people who enjoy their work and don’t wish to stop. The idea or concept of traditional retirement is not of interest.
Another term used to describe this is ‘Unretirement’. It’s the polar opposite approach of a traditional retirement path. It could also include people who might have tried full time retirement and realised it wasn’t for them.
In terms of examples- we have had a client now working in a consulting role who after working corporate roles long term- who is happy to work in a reduced 3 day per week self-employed consulting role indefinitely. Another mining supervisor is happy to work as long as possible on a very good income- if he can maintain his current even time FIFO roster- where he has essentially half the year off work already.
This approach requires an individual to have the right human capital and skills to be able to continue to stay employed. Of course, this doesn’t always occur due to unexpected health issues, redundancy or business challenges which may prevent that.
But that is why people in this camp- want to be firstly financially independent at a ‘normal retirement age’. That often means ideally in their 60’s owning a home with no debt and having a good amount of retirement/ superannuation savings already accrued. For them its about achieving financial independence or not having to work because they have to but because they want to. It means they can choose when they want to work, who they want to work for or with and they can have many mini retirements potentially over the years- with a month or two here or there for a longer holiday or quiet time.
With these clients- we are implementing a range of strategies to first of all achieve that financial independence they seek. We can at any point turn on a retirement income to supplement paid work at any point but also turn it off just as quickly if its is not required. We are also still accumulating and investing new funds not required after funding living expenses. In this way the retirement planning with this client after they have achieved financial independence is quite fluid and dynamic and changes with what our client wants their life to look like.
So there are three different types of approaches to retirement. We have the knowledge, experience and skills to help our clients in any of these scenarios and the fact is that no two retirements are the same just like no two people are the same- and that is part of what makes our work so enjoyable!
Have you thought about which type of retirement you want or what might be possible? We can help you the forward planning so you get the exact retirement you desire and the earlier do this the greater the opportunities. The first step is to book that first phone call with us here
