The Home Stretch: Your 5-Year Countdown to Retirement
The final five years before you clock off for the last time are a crucial period for your retirement planning. The decisions you make now will significantly shape your financial future. Think of it as the final leg of a long journey – a time to fine-tune your strategy, maximise your efforts, and ensure you cross the finish line into a comfortable and secure retirement. This guide outlines the key factors Australian retail investors should focus on in this critical pre-retirement phase.
1. Supercharge Your Superannuation
Your super is likely to be your most significant asset in retirement, so now is the time to give it one last powerful boost.
• Make concessional (before-tax) contributions: Consider salary sacrificing to your super. These contributions are taxed at a concessional rate of 15% (up to a cap of $30,000 per year), which is likely to be lower than your marginal tax rate. If your super balance was less than $500,000 at the end of the previous financial year, you may also be able to use any unused concessional contribution caps from the previous five years.
• Make non-concessional (after-tax) contributions: If you have savings outside of super, you can make after-tax contributions of up to $120,000 per year. If you’re under 75, you may be able to “bring forward” up to three years of non-concessional contributions, allowing you to contribute up to $360,000 in a single year.
2. De-risk Your Investments
As you near retirement, your investment strategy should shift from wealth creation to wealth preservation. You’ve worked hard to build your nest egg; now it’s time to protect it from market volatility. This doesn’t mean you should abandon growth assets altogether, but a gradual shift to a more conservative asset allocation is prudent.
3. Understand the Age Pension
Even if you have a substantial super balance, you may be eligible for a full or part Age Pension. It’s essential to understand how the income and assets tests work, as they will determine your eligibility and payment rate. Your superannuation is not counted in the assets test until you reach Age Pension age.
Whether or not you get the Age Pension, and how much you get in payments (a full pension or part pension), depends on how much other income you have. These tables show how much you can earn under the income test as of 1 July 2025.
* couple living apart due to ill health
4. Plan for Healthcare Costs
Healthcare is one of the most significant expenses for retirees. While Medicare provides a safety net, it doesn’t cover everything. Consider your private health insurance needs and whether you need to adjust your level of cover. Self-funded retirees who don’t qualify for the Age Pension may be eligible for the Commonwealth Seniors Health Card, which provides discounts on prescription medicines and other concessions. Research by Australian Seniors indicates that, on average, Australians spend over $1,500 on out-of-pocket healthcare costs each year, so it’s a cost that needs to be factored into your retirement budget.
5. Transition to Retirement (TTR)
A Transition to Retirement (TTR) strategy could be a valuable tool in your final years of work. A TTR allows you to access some of your super as an income stream while you’re still working, once you’ve reached your preservation age. This can help you to:
• Reduce your working hours without a significant drop in your income.
• Boost your super by salary sacrificing a portion of your pre-tax income into your super and replacing that income with tax-effective payments from your TTR income stream
6. Get Expert Advice
The five years leading up to retirement are a complex time, and the rules and regulations around superannuation, the Age Pension, and retirement income streams can be daunting. Seeking advice from a qualified financial adviser can help you to navigate this period with confidence and ensure you’re on track to achieve your retirement goals.
By taking these steps in the final five years of your working life, you can set yourself up for a financially secure and fulfilling retirement.
This article is general advice only and does not take into consideration your personal objectives, financial situation or particular needs. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
