Is a transition to retirement strategy right for me?

What is a transition to retirement strategy?

A transition to retirement strategy (TTR) is a stepping stone to retirement that allows you to reduce your work hours and supplement your lowered income with a portion of your superannuation funds.

Traditionally, this strategy involved negotiating reduced hours in the same job, and this is still the most common approach. But now we’re also seeing an increase in people using this approach to shift towards work they are passionate about.

TTRs are increasing in popularity, and it’s easy to see why. Put simply, retirement has changed.

A strategy for a changing retirement landscape

The Cambridge Dictionary defines retirement as ‘the act of leaving your job and stopping work usually because you are old’, but how relevant is that description to today’s retirees?

In Australia, the average age at retirement is 64.8 for a woman and 66.2 for a man, and many will live on another 20-plus years. Today, people in their sixties are far from ‘old’, with most still living life to its fullest – travel, sports, keeping fit, socialising, etc. For many of us, retirement is more than a quarter of our lives, so it’s not about the end or slowing down, it’s about living a whole new phase of life.

So, the definition above is outdated, but many retirement plans still revolve around this traditional idea of ‘stopping work’. Yet, you’re planning for the next two decades or even more, so continuing to work and making a slower transition can make sense on several fronts.

A transition to retirement strategy can be financially and emotionally sound

Of course, there is a financial aspect – you live longer, you need more money, and working longer will help you achieve this. However, there is also an emotional aspect to consider.

Many people look ahead to retirement with great excitement, focusing on the joy they will feel when they don’t have to work anymore. But this approach discounts the vital role work plays in our lives. For many of us, our job gives us purpose, structure to our days and social connections. It may also be more attached to your identity than you realise – until it’s gone. Many retirees find that it leaves a gap in their lives that can be hard to fill.

A TTR allows you to adjust and plan for the shift away from work rather than making it in a single leap. You can get used to more time to yourself, learn what you enjoy doing with your new-found time and build new social networks while still earning an income and maintaining workplace connections.

Is a transition to retirement strategy suitable for everyone?

In short, it can be suited to everyone. Whether you’ve been working full-time and are looking for an adjustment into retirement, or if you’re considering retiring but want to fill your time with meaningful work or passions before you wind down entirely, a TTR can be tailored to meet your needs.

However, it's important to note that while the benefits of a TTR strategy are extensive, they may not apply universally. The strategy's financial benefits, in particular, can vary from person to person. It’s important to seek guidance from your adviser to tailor a strategy that meets your financial needs and prioritises your well-being and life goals.

What are the financial benefits of a transition to retirement strategy?

The financial advantages of transitioning to retirement can be significant, especially when it comes to tax savings. When you start drawing income from superannuation while still working, even at reduced hours, you can potentially lower your overall tax liability.

However, the specifics of how a TTR strategy impacts your finances can be complex and are best understood with personalised advice.

Are there any pitfalls of a transition to retirement to consider?

A transition to retirement strategy can involve a mindset shift as you work for longer than you had intended, which may be difficult for some.

Another potential risk is that you will dip too far into your superannuation. With another 20 years or more to plan for and fund, it’s essential to have a clear plan that maintains income streams for the decades to come.

So, is a transition to retirement strategy right for you?

Embracing a TTR can be a transformative step towards retirement, allowing for a smoother transition and offering financial benefits. By understanding your personal and financial goals, you can better determine if this approach aligns with your vision for the future.

At the end of the day, transitioning to retirement is not just about adjusting your work life; it’s about redefining your lifestyle to fit your vision for the years ahead. Whether it's through continuing in your current role or embarking on a new venture driven by passion, a TTR offers a flexible approach to retirement planning.

If you’re contemplating a TTR, speak to an experienced retirement adviser to explore how this strategy would align with your broader financial plan and retirement goals.

General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.