Super trap alert: Working in retirement
Back in the day, Aussies really knew when they hit retirement. A farewell lunch with workmates, maybe a gold watch from management, and that was it. Full-time employee one day, full-time retiree the next.
Not anymore. The past 20 years have seen a doubling in the workforce participation rate of Australians aged 65 and older. The participation rate for men has almost doubled (from 10% to 19%) and nearly quadrupled among women (from 3% to 11%).
New research from super industry body, ASFA, shows just how fluid the notion of 'retirement' has become.
The study found 32% of Australians aged 65 to 69 are employed. Around 10% of them have no intention of retiring, while 20% aren't sure if they will retire.
As ASFA CEO, Mary Delahunty, puts it, "The days of working to customary retirement age and then putting your feet up are long gone."
Part of our desire to work for longer may be linked to today's high living costs. ASFA found that around 14% of over 65s who are still working believe they will never be able to retire, largely due to financial reasons.
A key driver behind the broader trend of seniors wanting to work for longer is the social connection and stimulation that work provides with around 25% of those aged 65 and over saying they plan to keep working to stay socially engaged.
I'm sure this won't come as a surprise to many retirees. While we are in the workforce it's easy to assume that retirement will see us busy relaxing. But for some people, the gloss of extended leisure time can quickly wear off, to be replaced by boredom and a sense of isolation.
However, there is a catch to planning to work for longer, and it reflects how our superannuation rules have failed to keep pace with changing retirement patterns.
When we can access our super
By way of background, we can normally access our super once we reach 'preservation age' (that's 60 if you were born after 1 July 1964). We have to wait several more years, until age 67, to apply for the age pension.
We don't have to retire full-time (or at all) at preservation age. It is possible to wind down our working hours and top up income using a super-based 'transition to retirement' income stream.
On the face of it, this strategy lets over-60s tick several important boxes - being able to work less without scrimping on personal income while still being able to top up super savings through employer contributions.
The super trap to be aware of
The glitch to this sort of plan is that, as the super rules currently stand, Australians who've hit preservation age cannot use the same super account to both draw down their super and also top up their balance.
Put simply, you need two or more accounts - one to draw money from and one to put money into.
This can come as a surprise to seniors especially as the government has been so active in encouraging us to have just one super account while we are accumulating super savings.
The real downside is that having multiple accounts inevitably means paying multiple sets of fees, which will eat into your nest egg.
ASFA says the current system doesn't make sense given our modern, fluid approaches to retirement, and it is lobbying for change.
In the meantime, the situation highlights the importance of seeking financial advice before winding down your working days or returning to the workforce - even if it's only on a casual or part-time basis - after you've hung up your work boots.
One of the biggest mistakes we can make when we retire is doing nothing and keeping all our money in a taxed accumulation account. Investment earnings in a pension (income stream) account are tax-exempt.
A growing number of super funds are expanding their advice services following new legislation that allows funds to offer limited personalised advice and deduct the cost from a member's account.
Services Australia offers a free financial information service. Or you may want to speak with an independent financial adviser to know where you stand.
The main point is to talk to an expert. It could even be the cue that prompts a review of your current super fund to see if a better value option is available elsewhere.