Anne Fuchs: Hello and welcome to Super Insider, Australian Retirement Trust's podcast on all things investing, the economy and your superannuation. It's an absolute privilege to host this wonderful podcast series. My name is Anne Fuchs. I'm the Executive General Manager of Advice, Guidance and Education here at Australian Retirement Trust or, as I call it, ART. It's fabulous; my pod buddy is on the show.
Joshua van Gestel: Good day, Anne. How are you?
Anne: Hello—Joshua van Gestel, our Senior Manager responsible for all things education to our 2.3 million members.
Josh: Wonderful to be here.
Anne: We are going to make sure we do the right thing and remind you that the information you're hearing today doesn't consider your personal circumstances. As you listen to this, you need to think about what this information means to you. Is it right for you? Of course, I would say: get some personal financial advice. You can always pick up the phone and call us, and you can find all those details on our website.
Josh, we're here today to talk about unplanned retirement.
Josh: That's right. I think we spend a lot of our time talking about planning for retirement and maybe not spending too much time thinking about what if retirement comes early.
Anne: For a big chunk of people that is actually the reality, isn't it?
Josh: Yes, due to sickness themselves, sickness of a loved one. It could have been a partner or a parent. Or if there had been a major change in their employment, such as redundancy.
Anne: If you're a blue-collar worker or in a caring profession and your back finally—
Josh: Then you just can't keep going.
Anne: Yes, packs it in.
Josh: Yes. I think you couple that with the other consideration. We have seen superannuation access age or preservation age, we call it, has been increasing. I think that's almost making the problem even worse, for some. I think it raises a couple of questions that maybe we do explore.
The first is: what do you do when that happens? What do you do when, all of a sudden, unexpectedly—
Anne: You're forced into a situation where you've got to stop working.
Josh: Yes, absolutely. We have to really think about what they can do there. But I think the second thing we should then be also thinking about is that, for those people that aren't yet in that situation—and let's hope it doesn't occur—how do you prepare for that if it does?
Anne: About 25% of Australians haven't checked their super balance in the last 12 months, so there is a call to action here. If you're 50 or 55 and you're one of those 25% that haven't checked, and unplanned retirement might be something that happens to you, then you need to log on.
Josh: I don't want to go down this rabbit hole, but for a lot of those people who do log on, well, great, I'm glad they're doing it. But most of them go, 'Well, do I have enough?' I don't think they ask that question about what will happen if it comes early. What will happen if retirement comes early?
Anne: Okay. So, let's play. How do you want to break this up?
Josh: Do we go back to, the situation’s hit you, what should you be thinking about?
Anne: Yes. There are timeframes, too, really. Retirement feels like a long way away. Actually, you're only a year or 2 off from actually being eligible for the Age Pension. There's probably that dynamic to it as well.
Josh: I think that's probably the first thing, how close to retirement are you? You can generally start accessing your super at the age of 60, and then you've got the Age Pension that is going to be accessible to you when you're 67. It's thinking about, 'Well, if I'm already close to that, do I only just have a short term that I need to think about?' With that short term, you really have to ask yourself questions like, 'What other investments do I have that I can call on? Do I have emergency funding and savings that I can call on? Do I have insurance within my superannuation fund? If I'm forced into retirement because I'm unwell, then is there something that I can actually do?'
Anne: A lot of people are taking a mortgage until the end of their working life. That will be a reality for a lot of people, too.
Josh: Absolutely. We're seeing more people go into retirement with debt than ever. I think it's firstly asking yourself how close are you to retirement and what gap you have to fill. I think the second thing is then thinking about what you said, 'Well, if I've also got debt to manage, maybe I'm much further out from retirement; I'm not just a couple of years away. I might be 10 years away.' That's where you'll have to think about getting guidance and assistance. That can well be from your superannuation fund, in seeking some advice. It could also, though, just be going to some of those basic areas of, if you've got a big mortgage debt, if you're challenged by it, if your circumstances have changed, ring your bank, talk to them about what you can actually do. Again, depending on how close you are to retirement, does it actually allow you to think about, do you downsize?
Anne: Let's talk about Downsizer. It is a phenomenon that continues to grow. People who have lived in the family home that probably wasn't a lot of money and now is worth a lot more. It is an opportunity; you can't eat your house. I think that's how the saying goes.
Josh: Absolutely. You can't just eat a bedroom. Downsizer is an initiative the government brought in a few years ago and is now accessible to many more people. So, if you’ve owned your own home for 10 years, or more, and you’re over the age of 55, you may be eligible to have part of that downsize from selling the property put into your superannuation. And that’s up to $300,000 a year, per person. So, part of the financial solution of retiring early may be thinking about how to use that bigger asset in your home.
Anne: So, you've got a Downsizer. Let's just say for argument's sake you are 60. Hypothetically, you're 60. For whatever reason having to stop work has been put upon you. You are in a position where selling your house is a viable option. Or maybe 60 is not the right age. In terms of making the decision to start drawing an income stream, what's the best way to approach that decision?
Josh: As we said earlier, if you're age 60 you can start to access your super. To set up a retirement income stream is a simpler process than it used to be. I think it's where you think about, 'I've been forced into this situation and my employment income has cut off. How do I now convert my super to replace that?', in effect. You can absolutely just move your superannuation, your Super Savings with Australian Retirement Trust, for example, into retirement phase and just be drawing down an income. But you also can, at age 60, if you need those lump sum amounts, take out withdrawals. That might be, for example, to look after that debt you have, or those things you need to deal with.
Anne: I think for our listeners just knowing that income you're taking out isn't taxed.
Josh: It isn't taxed. Over the age of 60, the income that you're drawing down is tax free. The investment earnings you're making are tax free. Any withdrawals, lump sum withdrawals, you take are also tax free.
If you have a Transition to Retirement (TTR) account, the one point of difference to a regular income account to be aware of is that those earning that you make on your TTR are still going to be taxable.
It is a very, very different time in your superannuation journey and you do get those tax benefits from it.
Anne: If you're in that position where you're 60 and this has happened to you, and you’d been wanting to get your super to a bigger balance. Or, if you were saying, 'Maybe I can retire at 65. I'm going to work a bit longer, so my balance is higher.' This has been thrust upon you. There are strategies. If you're worried about money lasting, there are strategies that can be put in place so that the money can last, or you can maybe not worry about that as much.
Josh: I think the first thing is to just ask yourself the question, 'Actually am I going to be okay?' I think you might actually find—and we often see this with members—that they're going to be in a better financial position than they may otherwise think. The first thing is to just assess your situation. You might be 5 years out from where you planned, but what it might mean is that you just have to change your expectations a little bit. Or you might see there are some basic things you can do around your investment decisions, for example, that can help grow that balance. Remembering you're at a stage in your life where your superannuation balance is now very big potentially in terms of your accumulation, and now a lot of the heavy lifting can be done by investment performance.
So, investment performance is key. Downsizer contribution, as we've talked about, is another opportunity. But the other thing is that when we see people with retirement thrust on them, you might find that you go into part-time employment. It might be a very different type of employment. But if you do go into some form of retirement that still gives you access to Super Guarantee. It still gives you the ability to think actually about, 'Well, do I just access my super as a transition to retirement income?' So, effectively you're still saving while you're also using your super to supplement your income.
I guess the main point of all of that is, if you have the situation thrust upon you, I guess the first thing you're going to do is maybe panic or get concerned. You'll have a lot of questions. Seek guidance and advice to look at your specific circumstances.
Anne: Yes. Don't go making any decisions without speaking to some people.
Josh: I think early retirement will always be different for every single individual.
Anne: I should say, speak to some people; speak to your super fund specifically or a qualified financial adviser.
Josh: For many of our listeners, this might be a wake-up call. This might be for some of our listeners the idea, as you said earlier, 'I'm in a job and I may not be able to keep on going. Physically, I may not be able to keep on going.' Or they've got some health niggles that they think, 'Could this actually come up and force the situation?' I'd say to our listeners who aren't in this situation: this is a good wake-up call to maybe prepare. Make sure your insurance is set up and right. I think also think about, 'Can I make additional contributions now? Can I be thinking about my investments now to try to get a bit stronger in performance?'
Anne: The reality is insurance and super are like peas and carrots or bangers and mash.
Josh: They're siblings.
Anne: Yes, champagne and cheese. If you don't have the insurance, you might be in a position where there's financial hardship and you're needing to then draw your money out of super, which means when you're older you'll have no money or not the money you need to live on. Insurance—so many of us now are getting a material illness.
Josh: Yes.
Anne: Because our health system is so great, we're surviving it, but we're out of work for potentially a couple of years or never back to full time. It's this whole concept of really making sure that you've got a plan in place.
Josh: It's funny, Anne. I haven't thought of this until now you've said it. The thing I say to people—I present to thousands of people a year. I love it.
Anne: Really? I had no idea. (laughs)
Josh: But what I say to them is: your super is there to plan for retirement. Your insurance is there if retirement comes early, or if you don't make it to retirement. I do think the wake-up call here is to think about your insurance. Think also about something fundamental for us all—have an emergency fund. But also check in on your super. We want more people looking at their super balance. Ask yourself: is it enough and would it be enough if I want to retire soon?
Anne: Doing nothing is going to exasperate that problem.
Josh: And to 40-year-olds, the 50-year-olds, and people even getting close to 60, what I always say is that, as you age, every decision you make to put more money in super, or to look at your investments, the younger you are, the bigger impact it's going to have. As you age you just need to think about maybe taking those steps more often and maybe making them a bit more purposeful. But to your point, if I'm a 40-year-old and I look at my balance and it's not where it should be, some really small simple steps like making a smaller regular contribution, by making an investment change, can really set you up for a much better retirement outcome or early retirement outcome.
The other thing to think about, if you did get made redundant, and you’re receiving that redundancy payment you’re probably trying to work out, do I use that to pay off debts? Do I put it into other investments? The other thing to consider is that you can make that a personal contribution into your superannuation as well, to help grow that balance a little bit further for you.
Anne: I guess the message to our listeners is that retirement does happen by surprise for a lot of Australians.
Josh: Yes.
Anne: We as a country are getting much better at looking after our health and our wellbeing and exercising. But as humans, you've got your loved ones, your health and financial security. If one of them is out of kilter, you're out of kilter. So, what we're saying is, knowing that retirement might be put upon you by surprise, there is some stuff you can do today.
Josh: Absolutely. I think the first thing: check in on your super. If you need to have a conversation, have it. For those people who are in that situation, reach out. I think it's important they know they're not alone and we are here to help. We are here to give guidance. There is also financial counselling that's available to people, both through us, but more broadly, and people should really lean in on that.
Anne: Centrelink financial counselling. But, yes, it would be a natural human reaction to be stressed and worried. But don't just internalise that. Pick up the phone. There are strategies you can put in place. Certainly, here at Australian Retirement Trust we have a team of education and advice and guidance professionals to help our members with that. Josh—
Josh: Fabulous, Anne.
Anne: Yes, good chat. Bit of a heavy chat, but a good one. What will we say to our listeners? They should all be subscribing, I reckon.
Josh: I think they should all subscribe and hopefully this actually—
Anne: Tell your family and friends.
Josh: It's a down and dark subject, but I think it's also one with purpose and gives some optimism.
Anne: Yes. I'd say: tell your family and friends. If you're one of these motivated people who have done something about it, you need to hustle the people you love around this subject matter and tell them all to subscribe to Super Insider, and we'll look forward to you joining us again soon. Thank you.
Josh: Thank you.
This transcript has been edited for length and clarity.
