How to Retire Earlier: The 5 Levers Australians Can Pull  – Guidance Financial Services

Retiring earlier than you ever expected isn’t about winning the lotto — it’s about knowing which financial levers actually move the needle. 

Not everyone looks forward to retirement. Our work gives us purpose and social connections, which can be just as important as the pay check. But if you’ve chosen to listen to this podcast episode I am going to make the assumption that you are in the cohort who don’t fear retirement. In fact you would like it to happen sooner rather than later. 

In this episode we’ll explore the strategy levers that you could pull to significantly improve your retirement outcome. Financial Autonomy is all about choice, and having the option of retiring a couple of years earlier is a great asset to have in the back pocket, whether you choose to make the leap or not. 

I should just make mention that as always the information provided in this podcast is general in nature. I’m going to suggest a few strategy options here, but they may not be applicable to your circumstances depending on income and tax levels, risk appetite, and overall balance sheet. Please factor this in, and if any if any doubt, contact us for advice. 

So without further ado, let’s dive into this week’s episode, How to Retire Earlier – the five levers Australians can pull. 

1. Contributions 

When it comes to retirement planning, superannuation is front and centre. The tax benefits are incredibly valuable, and taking full advantage of them can make a meaningful difference to your future. 

Due to the generosity of the system, there are limits as to how much you can put in. Wherever possible we should all look to utilise these limits to the maximum. The most important is the transfer balance cap, as this is the maximum amount of that can go into a tax free pension at retirement. The current limit is $2,000,000 per person. An optimal strategy therefore would be to endeavour to use as much of this limit as is possible. 

Getting there requires contributions, with the two primary ones being concessional and non-concessional.  

Concessional contributions are those where a tax deduction is claimed. These are your standard employer contributions, but also things like salary sacrificed contributions, or those where you choose to claim a tax deduction. The concessional contribution limit is $30,000 per year. Check what your employers’ contributions are currently totalling to, subtract that from the $30,000 limit, and whatever’s left is the headroom you have available to work with.  

To give you the option of retiring earlier, could you boost your contributions, particularly via salary sacrifice? The greater is your super balance, the greater the income it can produce, or conversely the more years it could support you in retirement. 

Non concessional contributions are those where a tax deduction does not apply. As a consequence the limit on this for of contribution much greater, at $120,000 per year. Perhaps you have savings sitting outside of super, or received an inheritance or other lump sum payment recently. It may be that dropping this money into superannuation is a smart move, with earnings likely to be greater than cash in the bank depending on the investment option you’ve selected, and all the tax benefits already mentioned. Once retired and in the pension phase all money is fully accessible, so depending on your age and distance to retirement, it may be that not a lot of flexibility is being surrendered. 

2. Spending Efficiency / Lifestyle Design 

A key input into the affordability of retirement is how much income you need. A successful retirement is certainly not one where you live your life as a pauper. But are there opportunities to optimise your spending?  

Perhaps there are some recurring expenses or subscriptions that could be cancelled. Could you downsize, or move to a regional area where housing costs are lower? If you need to travel interstate or overseas to see family, could you have longer but less frequent trips to reduce the airfare expense? If you are a couple, do you still need two cars once you are retired? 

Review what you’re spending and consider opportunities for change without sacrificing your quality of life. And these changes need not wait until you are retired. Perhaps there are changes you can make that free up some cash to enable salary sacrifice contributions to super for example. 

3. Asset Allocation and Investment Risk 

Asset allocation is perhaps the most important thing to get right when it comes to portfolio management. Being too conservative reduces returns and results in your savings running out sooner than you would like. But being too aggressive, to the point of recklessness, is not what we want either. 

To help bring your retirement forward, review the asset allocation, particularly of your super fund, and consider whether it’s fit for purpose. Is it currently more conservative than it needs to be? An extra percent or two return, particularly if you’re a fair way out from retirement, could significantly strengthen your financial position. 

Whilst in the accumulation phase you are a buyer, so market drops are to your advantage as the price you are paying is lower. Once retired, a bucket strategy approach can ensure that you have a significant safety cushion in the event of a market fall, so that you aren’t required to sell shares whilst their prices are down. 

A lever you have available to pull if you want to bring your retirement forward is to invest with a greater exposure to growth assets, primarily shares. 

4. Home Equity 

It’s highly likely that your most valuable asset is your home. Tapping the equity you have here could be another way to bring forward your retirement. The most obvious would be a downsize. There are specific superannuation contribution rules that enable a portion of the sale proceeds from a downsize to be deposited into superannuation and not count against any of the other contribution caps.  
 
But of course superannuation isn’t the only game in town. If you have more funds available than you are able to get into superannuation, then these can certainly be invested or used to live off for a few years to allow your super additional time to compound. 

Beyond downsizing, your strategy could entail using a reverse mortgage late in life. Here you would accept that your superannuation will run out during your lifetime, with the latter phase of your retirement being funded via a reverse mortgage solution. 

5. Don’t Go Cold Turkey 

Our fifth and final lever to pull to enable earlier retirement is to pick up some part time work once you leave the grind of your current full time load behind you. Often towards the end of our careers we’ve gotten into senior roles which pay well but are demanding. The desire to retire earlier may be a consequence of the need to escape this pressure. Perhaps if this pressure is removed, full retirement is unnecessary.  

Could you pick up a part time job at the local Bunnings? Or do some casual, non-stressful work close to home? If some portion of your retirement income requirements could be met by part time work, then the amount of super needed for you to be financially secure long term would be lessened, which would then facilitate bringing forward your retirement. 

Well that’s it for my 5 levers that you could pull to bring your retirement forward by a few years. Hopefully some or all of them are applicable to you. 

If you need help planning your retirement, book an appointment via our website: www.guidancefs.com.au  

Bye for now