Despite being eligible for Age Pension when you reach 66 years of age, it may surprise you to know that there’s actually no such thing as a ‘retirement age’ in Australia. There are actually no laws that dictate when someone can retire. That being said, there are laws surrounding when you can access your super funds and when (or if) you can access Australia’s age pension. These are major influencing factors for many Australians’ in deciding when to retire. If you’re an older Australian considering retirement, there’s some things you need to know before officially retiring and withdrawing from your superannuation account. Shoebox Books break down the must-know information before making the final decision.
When Can You Access Your Superannuation?
In Australia, you are legally entitled to access your super when you reach preservation age. Your preservation age is based on the year in which you were born, as seen in the below table. You are allowed to access your super on the condition that you have permanently retired from working, meaning that you are no longer planning on continuing with any paid employment (however, you continue to have some options for employment even after permanently retiring).
|Your date of birth||Age you can access your super (preservation age)|
|Before 1 July 1960||55|
|1 July 1960 — 30 June 1961||56|
|1 July 1961 — 30 June 1962||57|
|1 July 1962 — 30 June 1963||58|
|1 July 1963 — 30 June 1964||59|
|After 1 July 1964||60|
If you’re ready to retire and withdraw from your super, you have options of how you can access your money. You can do a complete withdrawal, partial withdrawal (if you’d like to keep your account open and potentially earn interest), and you can set up regular payments to get you through your retirement years.
If you’re not quite ready to hang up your boots, however would like to lessen your work obligations while receiving monetary support, you can set up a ‘transition to retirement’ fund with your superfund. This allows you to access small, regular payments from your super while you still continue to work at a decreased capacity.
For some superfund members, earlier access is provided if you’re in a defined benefit fund, in which case you may be able to access a defined benefit pension from age 55, regardless of your DOB (eligibility requirements are different for each fund). Further, there are instances in which you are entitled to access your super early; if you’re in one of these special circumstances then you can make withdrawals from your super account to financially support yourself.
If you need further financial assistance, as a senior Australian that has permanently retired, you may also be able to claim age pension. Unfortunately, the age in which you can claim the age pension has been gradually increasing as Australians (and much of the rest of the human population) increasingly live healthier, longer lives. Most Australians will have to reach the age of 67 before claiming. It is important to note that you can only claim this if you pass an assets test.
Accessing Your Superannuation Early?
In some (very limited) circumstances, you can access your super funds early; that is, before you reach your preservation age. The following events qualify for the early release of super.
- Incapacity: if you’re unable to work or need to work fewer hours as a result of a medical condition.
- Severe financial hardship: if you are unable to meet your immediate living expenses and have been receiving income support payments for 26 weeks.
- Compassionate grounds: to pay for certain necessary expenses (e.g. medical treatment, modifying your home or vehicle because of severe disability, funeral expenses, or loan repayment to prevent losing your home).
- Terminal medical condition: if you have a terminal illness or injury.
- Buying your first home: Under the First Home Super Saver Scheme (FHSSS), you may be able to make voluntary super contributions and then apply to access those contributions and earnings to buy your first home.
As we all know, 2020 was a whirlwind year as we buckled down for a global pandemic – this led to some major changes in the rules and regulations regarding early access to super. As a result of the financial hardship resulting from COVID-19, the Australian Government introduced a new early release scheme in 2020 for COVID-19 affected individuals. This scheme allowed people to access their super early; withdrawals of up to $10,000 in the 2019/2020 financial year and another $10,000 in the 2020/2021 financial year were allowed to help Australians with financial hardship. Unfortunately, as of the 1st of January 2021, this scheme ended as the ATO is no longer taking applications for the early release of super due to COVID-19.
While the brunt of COVID-19 seems to have ended, you may find yourself still struggling with your finances as a small business. To get relevant and helpful financial advice, talk to one of the specialists at Shoebox Books who can guide you through managing your books, tax, and navigating super.
Be Mindful of Penalties, Scams and Schemes
Be mindful of heavy penalties that apply for breaking the rules around accessing your super early. If you do not meet any of the conditions of early release, it is illegal to access your super before your preservation age. This is to ensure that you have enough money in retirement. If you withdraw from your super early, fees and severe penalties apply. Further, the amount you withdraw will be considered assessable income, which you’ll need to pay tax on. In the long run, you’ll also lose money from your superfund that was there to help you in retirement. Always ensure you are withdrawing from your super under the right conditions.
It is also important to be aware of scams and schemes. A popular scam includes promoters claiming to offer access to your super early by transferring your super into a self-managed super fund; this scheme is illegal and promoters face harsh fees and penalties (including jail time) for promoting and running such operations. If you have seen an early release scheme that doesn’t seem right, you can report it to the ATO.
Other scams or schemes to look out for include when people:
- Impersonate the ATO or a trusted organisation like your fund to steal your money or personal information.
- Contact you and charge for services that are free (e.g. gaining early access to your superannuation).
If you receive a phone call, text message or email offering to help you release your super early, do not provide personal information or click on any links. If you’re unsure, contact the ATO to confirm if an interaction is genuine.
What to Consider Before Accessing Your Superannuation Early
Before you reach into your retirement savings (if you’re eligible), it’s important to first consider the costs of doing so and your other options.
Know your financial assistance options:
In Australia we are fortunate the government offers generally quite generous support when we are struggling financially. Check your eligibility for income support payments (e.g. JobSeeker, Job Keeper, NewStart) and how savings may be affected when you get your first payment. If you have mortgage or business loans to stay on top of, contact your bank’s financial hardship team as you may be able to change the terms of your loan, or temporarily pause or reduce your repayment.
Check your super balance:
Your super balance may have changed since you last checked as a result of the temperamental nature of the stock market during the pandemic. If your account balance has dropped, you may wish to wait until it recuperates before digging into your super.
Consider impacts on your insurance:
Over 70% of Australians that have life insurance hold onto it through retirement. If this is something you wish to keep, you need to ensure you don’t use up all of your super. If your super falls to 0 or is too low you may risk losing your life and income protection cover.
Estimate the impact on your retirement if accessing early:
Money withdrawn today is money you won’t have in your golden years, so calculate and consider the impact withdrawing super today will have on your retirement if you’re releasing super a lot earlier than intended. The accumulation and compounding rate of your money in a super fund is extraordinary; short term sacrifices can lead to significant long-term rewards. For example, industry expert, Peter Switzer, warns taking $20,000 out of super could mean losing $640,000 in the long term.
Make a plan for the months ahead in retirement:
When accessing your super, it is important to make a plan for how it can support you over your retirement (e.g. build an emergency fund that will provide a financial safety net to cover unexpected expenses or future changes to income and set up a weekly budget). Ideally, you’ll want to make your super last as long as possible – remember, that should you encounter hardship, you can also claim the age pension at 67.
Find additional help if needed:
Pave an easy road to retirement by managing your finances today. Small to medium businesses can request a free consultation with a Shoebox team member today to discuss financial matters such as bookkeeping, tax preparation, and financial planning.
Start learning about how to be smarter with your money today by following more of Shoebox’s helpful advice updated regularly on our blog. If you’ve reached your preservation age and are about to embark on the new adventure of retirement, or have made the complex decision to withdraw from your superfund early, remember to save this article to help you understand whether you meet the right conditions.
Shoebox Books specialise in tax and bookkeeping services to help individuals and small businesses better their financial situation. Contact Shoebox to get in touch with one of our highly experienced tax advisors or bookkeepers or to learn more about our services!