The dream of early retirement is an appealing one: more time for travel, hobbies and family. But stepping away from work earlier than the traditional retirement age comes at a price. Understanding the real cost of early retirement is essential for making informed decisions about your financial future.
According to the Association of Superannuation Funds of Australia (ASFA), the average comfortable retirement lifestyle costs around $70,000 a year for a couple and $50,000 for a single. However, these numbers are based on retiring at 67. If you’re considering retiring at 60 or even 55, you’ll need to fund extra years without employment income, which requires a significantly larger savings pool.
1. Estimate How Long Your Retirement Might Last
Australians are living longer. If you retire at 60, you might need your savings to last 25–30 years or more. According to the Australian Bureau of Statistics (ABS), the average life expectancy is over 85 years.
That means if you’re retiring early, your super and personal savings need to cover a much longer retirement period. This raises the stakes in retirement planning.
2. Calculate the True Annual Cost of Living
Retirement doesn’t always mean spending less. Many retirees find that the early years are filled with expensive leisure travel, renovations, or even supporting adult children. Work out your projected annual spending by categorising your lifestyle costs:
- Essentials (housing, food, transport)
- Discretionary (entertainment, holidays, hobbies)
- Health (private health insurance, out-of-pocket expenses)
3. Superannuation Access and Preservation Age
One of the biggest challenges with early retirement is that you may not yet have full access to your superannuation. The preservation age, the age at which you can access your super, ranges from 55 to 60, depending on your birth year.
If you plan to retire before your preservation age, you’ll need alternative savings or income sources until your super becomes accessible.
For more information about retirement strategy timelines, visit A.S.A.G.’s Retirement Planning page.
4. How Much Do You Need?
There’s no one-size-fits-all answer, but a common rule is the 4% withdrawal rule. This suggests that you can safely withdraw 4% of your savings per year in retirement. To generate $50,000 annually, you’d need about $1.25 million in savings.
However, this rule assumes steady investment returns and doesn’t account for market volatility, inflation, or unexpected expenses.
Helpful Reading: Vanguard – How Much Do You Need to Retire?
You may also want to read this article on early retirement fears from A.S.A.G., which highlights that many Australians are concerned about outliving their savings.
5. Health Costs and Insurance
As you age, health costs inevitably rise. While Medicare covers many basics, retirees often rely on private health insurance for more comprehensive care. Premiums can rise significantly, and out-of-pocket expenses can surprise those unprepared.
6. Invest for Growth, Not Just Preservation
Conventional wisdom suggests shifting to conservative investments as retirement nears. But if you retire early, your investment horizon could still span decades. Having a balanced portfolio including growth assets like shares may be essential to keep up with inflation and sustain your savings.
7. Strategies to Boost Your Early Retirement Fund
If you’re behind on your savings target, there are still ways to catch up:
- Salary sacrificing: Direct more pre-tax income into super.
- Downsizing: Consider selling a larger home and investing the surplus.
- Part-time work or consulting: Maintain income without full-time employment.
- Government incentives: Some programs help maximise super contributions.
Explore more ideas in A.S.A.G.’s guide on Planning Retirement in 2030.
8. Build Flexibility Into Your Plans
Life is unpredictable; your retirement plan should be flexible enough to handle shocks. Consider:
- Emergency savings buffers
- Regular financial reviews
- Downsizing or relocating
- Accessing the aged pension later
Start building your knowledge base about retirement at www.asagfirst.com.au/blogs/, where you’ll find helpful articles and tools for retirement planning.
Planning for the Real Cost of Early Retirement
Retiring early requires more than just aspiration, it demands meticulous financial planning. By estimating how long you’ll need your money to last, assessing lifestyle costs, and building a robust investment strategy, you can navigate the real cost of early retirement with confidence.
Take control of your future and start planning early. Use trusted resources, seek expert advice, and revisit your plan regularly. Early retirement is possible—with the right strategy.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always consult a qualified financial advisor for personalised guidance.