Once upon a time, retirement was clear-cut and simple. People would reach a certain age, turn in their notice and immediately begin life without work commitments.

But the lines between retired and working life are blurring. Retirement is now a process, not a defined event.

A recent study shows Australians aged 65 and over had workforce participation as high as 15 per cent (19% for men and 11% for females), compared with 8 per cent in 2006, according to the Australian Institute of Health and Welfare. This is only expected to increase, as intentions to continue work later in life has risen, with 33 per cent of people aged 45 and over not planning to retire until age 65.5 and 38 per cent of people not knowing when they intend to retire.

Rather than escaping to a work-free life at the preservation age, many Australians, are instead choosing a phased retirement strategy, involving reducing work hours prior to retirement. Winding down like this is a great way to achieve work-life bliss and prepare your lifestyle for the changes retirement can bring – but there are a number of considerations that must be taken into account.

Invest Blue client, Ron Pearce understands all too well the importance of easing into retirement. It was always his plan to retire when he turned 60, and he was able to do so comfortably. However, he soon realised that he wasn’t quite ready for full-time retirement. Fortunately, he was able to take on some casual contract work that gave him flexibility and was a great way of winding down. He’s now enjoying full-time retirement and doesn’t know how he ever had time to work! You can read Ron’s full story here.

We spoke to Invest Blue Financial Planner Julian Prendergast to gain insight into what pre-retirees should be thinking about as they scale back their busy lifestyles.

Are you ready to speak to a financial planner about your transition to retirement strategy? Get in touch.

Changing your lifestyle

If you’re thinking about reducing your work commitments, it pays to have a proper understanding of why you’d like to do so.

One of the greatest benefits of winding down from work is the opportunity to ease into a new way of life. For many of us, work is an important part of structuring our personal and social identity. It can provide us with a sense of purpose, agency, and routine which can all be crucial to maintaining self-esteem and mental wellness says the World Health Organisation. Suddenly letting go of something that has been a central part of your life for upwards of 30 years can naturally be quite disruptive, so it can be a good idea to make this a gradual process.

As you spend less time at work, you’ll gain more freedom to start building new routines. Think about how you’re going to maximise your work-life balance. Seize these new opportunities to establish or rekindle social connections that may have become assimilated into your life at work. This means setting aside time for social engagements, like catch-ups with friends or joining community groups. Take your time to experiment with new hobbies and communities to discover where you might belong.

To help you get a better understanding of what you want your retirement to look like, we’ve developed a fun guide full of worksheets and challenges. It will help you to think about what’s most important to you and challenge your thoughts on how you would like to spend your time. Click below to download the guide.

Painting Your Retirement Picture

Building a budget

Generally, with less work comes less income.

Building a pre-retirement budget is crucial to ensure winding down is safe for you. Project how your income will decline as you reduce your hours, as well as what sort of ongoing costs you’ll have. You’ll still need to be able to support yourself, so there might be a maximum to how much you can wind down. If you’re working past the pension age, you may be eligible for the Work Bonus, increasing the amount you may earn from employment before it starts to affect your age pension income. This is a great chance to identify ‘fixed’ costs that you may be comfortable letting go of as you near retirement, too.

It’s a good idea to aim to become debt-free before scaling back your work commitments, as rate fluctuations could inflate repayment costs and disrupt your budget significantly.

Sticking to a tighter budget now can be beneficial to your post-retirement lifestyle, too. When jumping straight into retirement, it’s possible to enter a sort of “honeymoon spending phase”. With all your newfound time, you might be suddenly spending a lot more money on all the things you didn’t have time for before – like travel or caravans. By winding down, you can slowly introduce the idea of unlimited free time and come to terms with moderate spending habits more easily.

Whatever your plans may be, it’s important to ensure you have a financial plan in place that allows you the freedom and flexibility to live your life. If you’ve already got a budget in place, it’s a good idea to review it and ensure it is aligned with your bigger-picture plans. If you don’t have a budget, get started with our Living Expenses Calculator.

Preparing your super

Another key benefit of a phased retirement strategy is the additional time your superannuation assets can spend in the accumulation phase. By delaying your access to super, you can continue to reap the benefits of compound interest and grow your wealth for a more comfortable retirement.

That said, you should also pay attention to how your reduced income will affect accumulation. As your income decreases, so too will your employer’s superannuation guarantee payments. You might consider a transition to retirement (TTR) strategy. Under TTR, you may have the option to supplement your new part-time income by drawing on some of your superannuation. You may then choose to maximise your concessional contributions to reap the tax benefits and boost your super.

Speak to a financial planner about whether a TTR is suitable for you and your situation.

How does your super balance stack up?

Sometimes it can be hard to assess whether you’re on track when it comes to our superannuation and general savings. While money is different for everyone, it can be helpful to have a look at how your situation compares to the average. To see how your super balance stacks up, and for some great savings worksheets, download the guide below.

Your Super & Savings Benchmarks

Considering your living situation

At this time in your life, you might consider downsizing. If you’re still living in your family home, it’s likely you’re left with more space than you know how to use. This can become burdensome as you grow older, so your winding down period is the perfect time to think about where you’d like to live in retirement. As of 1 July 2018, downsizers may be entitled to make non-concessional contributions up to $300,000 to their superannuation using the proceeds of their home sale, according to the ATO.

Moving on from your long-term home can be difficult, so it can help to let go in small doses. Use this pre-retirement period to go through your belongings and seek new homes for those you don’t need anymore. Passing beloved possessions on to someone who will love and use them just as much can provide that little extra comfort to help you through the process.

Putting family first

Try as we might, many of us lose touch with our families as we age.

Your own parents may be entering aged care, and this can be an emotionally difficult time. Reconnecting with your parents, siblings or found family is a critical part of building a support system prior to retirement. Talk to one another about your wishes and plans for retirement – this can help you rebuild bonds and promote transparency to maintain your connections later in life.

This is also when you should be spending more time with your partner, if applicable. Take the time to understand each other’s expectations of retirement to circumvent any avoidable conflict later on. Become properly reacquainted and learn how to be around each other more often than you would have been when you were both working.

Winding down to retirement is an exciting time in life – but it doesn’t come without challenges. It is our passion to help you live your best possible life.

For a leg up over your transition to retirement hurdles, reach out to us at any time.

What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.