Forced into early retirement: Your options when the end of work comes too soon

Early retirement is something plenty of workers dream about, but the reality is that for the large majority of people who do so, it’s an unwelcome event and often a shock.

Research shows that almost 75 per cent of men who retire before age 55 do so involuntarily, with health problems being the biggest driver. When it comes to women who retire before 55, nearly 60 per cent do so involuntarily, again largely through ill health, or to take on carer roles.

Tim Howard, a technical consultant at BT Financial Advice says that life circumstances mean that some of these people haven’t been able to prepare financially for the end of a regular wage until the very point at which they stop working.

“Some people may not have been able to put money away until reaching a point of life, where they’ve paid down the mortgage, the kids have moved out or are moving out, and they’ve finally found some free cash flow to allow them to put money away for retirement,” he says. “You can often think things are okay until you actually sit down and look at the numbers.”

This can lead to a precarious time financially for those people, with a study showing that almost 75 per cent of Aussies aged 45-64 who weren’t in the workforce due to ill health lived in what’s called income poverty – that is, they survive on less than half of the average Australian income.

If you’re concerned you may have to retire earlier than expected, Howard recommends first taking a careful look at assets and liabilities, particularly any income you can reasonably expect to receive after you leave the workforce, say, from investments or a rental property, and your expenditure. Depending on your health, the likelihood of a part-time job or work-from-home situation could be considered here if you’re confident they’re strong possibilities.

Taking a snapshot of your incomings and outgoings may sound obvious, but isn’t something everyone does, especially if they’re not the family’s ‘money manager’. Howard advises looking specifically at your fixed expenses, such as mortgage payments and utility bills, and your discretionary expenses, to see where there may be opportunities to free up cash.

“Once you know where you’re at, then you know what decisions need to be made around getting you moving forward to where you want to be,” he says.

If your income looks likely to fall short of non-negotiable outgoings, there are some avenues to explore. Although this article does not cover all the options, you should do your own research into which option suits your circumstances. People who aren’t yet old enough to receive the Age Pension can apply for a Disability Support Pension.

However, this requires you to prove that you have a permanent medical condition that prevents you from working, as well as to meet income and assets tests, and the rules around providing this proof can be complex. The Department of Human Services provides more information on how it determines whether an applicant is eligible for support.

The government also offers a Sickness Allowance that can provide you with an income if you have a temporary inability to work due to illness and a Mobility Allowance that provides support with transport costs if you have a disability, illness or injury that prevents you from getting around on public transport.

Meanwhile, the Pensioner Education Allowance will cover the cost of studying for qualifications that will help you find more suitable employment, but you need to be already in receipt of other government support payments to qualify for the allowance.

It may be possible to access your superannuation early, but again, the rules around doing so are strict. 

But he cautions that the decision to access your super early shouldn’t be taken lightly.

“You don’t want to pull it all out and spend it in one go if you can possibly avoid it, because then you’ll be left with a question around how you may fund your retirement income in the future,” he says.

He recommends seeing an independent financial adviser before making any decision regarding your super to ensure that you’ve explored every income option open to you.

“There’s always an opportunity for an adviser to assist, no matter what financial position you’re in,” Howard explains. “The advice process works by firstly identifying where you are today, your financial position, identifying what you want to achieve, the outcomes you want, and then realistically helping you bridge the gap from your current position to the position you want to be in.”

If you’re one of the Australians lucky enough to own their own home or have a significant amount of equity in your home, he says it’s worth considering whether your home could play a part in funding your early retirement. Many people are concerned that downsizing to free up money that could be used to produce an income will impact their eligibility for a pension, but Howard says that those fears could be unfounded.

“With the appropriate planning, you can may be able to minimise the impact this income could have on your Age Pension, so it’s an option people should be aware of,” he says.

As always, though, the most important step is to plan for retirement as far ahead of retirement as possible to give yourself some flexibility on your retirement date.

“Your plans will change, your personal circumstances will change, the rules and regulations for superannuation and taxation may change over time too, so reviewing your position and taking proactive steps to realign your financial plan is the best thing you can do,” Howard says.

Did you have to retire earlier than expected? Was there an emotional or financial impact on you from the change? How did you cope?

Disclaimer: Information current as at 30 September 2018. BT Financial Advisers are representatives of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac). BT Financial Advice is a division of Westpac. The information in this publication is general information and factual only. It does not constitute any recommendation or financial product advice. The information has been prepared without taking into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This information may contain material provided directly by third parties and has not been independently verified and Westpac Banking Corporation is not in any way responsible for such information.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.