Financial Planning for Workers Approaching Retirement in Australia

Mistakes made in the decade before retirement cannot be easily undone - unlike errors at 35 that have 30 years to recover. Understanding why this period demands extra attention is the starting point for effective pre-retirement planning.

• Sequence-of-returns risk is at its peak: A severe market downturn in the 2–3 years just before or after retirement - when the portfolio is at maximum value and withdrawals begin - causes permanent damage that a downturn at 35 does not. This 'sequence risk' is the central challenge of pre-retirement planning
• Super balance decisions become irreversible: Commutation decisions, pension commencement, and transfer balance cap elections cannot be unwound. Unlike accumulation phase where poor decisions are partially recoverable, pension phase decisions are permanent
• Centrelink strategy requires lead time: Optimising Age Pension eligibility through asset and income positioning requires action 3–5 years before pension age - decisions made at 66 cannot retroactively improve your position at 67
• The compounding window narrows: Each year before retirement is a year in which super contributions still compound tax-free. The difference between retiring at 62 and 65 - three more years of 15% tax super compounding - can be worth $100,000+ on a substantial balance
• Insurance needs are changing: Life insurance requirements are declining as debts clear and wealth accumulates; income protection is near its most valuable (protecting peak earnings); TPD cover should be reviewed as cover becomes more expensive with age
• Estate planning urgency is real: Most Australians have outdated Wills, no enduring power of attorney, and unchecked BDBNs. Health deterioration can remove legal capacity - estate planning actions must be taken while you are cognitively capable

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The years between ages 55–67 represent the last opportunity to make large super contributions at the lowest possible tax rate. These strategies should be executed with urgency.

• Carry-forward concessional contributions: If your super balance is under $500,000 and you have unused concessional cap from the past 5 years, you can make catch-up contributions in one year - potentially $150,000+ concessional in a single year if multiple prior years were unused. Calculate your carry-forward capacity via myGov
• Non-concessional bring-forward: Under-75s can contribute $360,000 in non-concessional contributions over 3 years (the 3-year bring-forward rule). For pre-retirees with significant assets outside super (property proceeds, inheritance, investment portfolio), transferring into the super tax environment via NCC is highly valuable
• Downsizer contributions: Australians aged 55+ who sell their principal residence can contribute $300,000 each ($600,000 per couple) to super regardless of the non-concessional cap, total super balance, or work test. This applies even if the NCC bring-forward has already been fully used
• The work test for those aged 67–74: From age 67, you must meet the work test (at least 40 hours of paid work in 30 consecutive days in the financial year) to make voluntary super contributions - unless you are under the work test exemption (balance under $300,000, met test in prior year)
• Super contribution timing at year end: Personal deductible contributions must be received by your super fund before June 30. Allow 3–5 business days for EFT transfers - contributions initiated on June 29 frequently miss the deadline and fall into the next financial year
• Review your super investment option: As retirement approaches, the appropriate investment option shifts - not to cash, but to a lower-volatility growth allocation. A 60/40 or 70/30 growth/defensive split is often appropriate in the 5 years before retirement. This reduces sequence-of-returns risk without sacrificing all growth

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From preservation age (60 for most Australians), a Transition to Retirement pension allows drawing from super while still working. Used correctly, it creates significant tax savings in the pre-retirement years.

• What a TTR pension allows: Once you reach preservation age, you can commence a TTR pension from your super fund - drawing 4–10% of the pension balance per year (as income) while still employed. The super earnings supporting a TTR pension are taxed at 15% (not 0% - that only applies to account-based pensions in full retirement)
• Primary TTR tax strategy: Salary sacrifice additional amounts into super (reducing your taxable income) while drawing the equivalent amount from your TTR pension to maintain cash flow. Net effect: more income in the lower-tax super environment, less taxable income personally
• Example: At $120,000 income, salary sacrifice $20,000 extra into super (saves ~$7,400 in income tax). Draw $20,000 from TTR pension (at 60+, pension withdrawals are tax-free). Net cash position unchanged; net tax saving $7,400 per year
• TTR is less effective post-2017: Tax law changes in 2017 removed the 0% earnings tax for TTR pensions - earnings are now taxed at 15% inside the TTR pension, reducing but not eliminating the benefit. Still valuable for high-income pre-retirees near preservation age
• Full retirement switches TTR to account-based pension: Once you meet a condition of release (genuine retirement after 60, reaching 65 regardless, or a specific ATO condition), your TTR automatically or deliberately converts to a full account-based pension - earnings become 0% taxed immediately
• TTR is not for everyone: The administrative complexity, investment risk during TTR, and declining marginal benefit at lower income levels mean TTR strategies are most valuable for high-income earners in the $100,000–$180,000 range in their late 50s to early 60s

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Maximising Age Pension eligibility requires deliberate asset and income positioning beginning 5 years before pension age (67). Actions taken earlier have more impact.

• Understand both tests apply: The Age Pension is assessed under both the assets test and income test - whichever produces the lower pension determines the actual payment. Pre-retirees need to understand both tests and model their position under each
• Super accumulation is excluded from means testing until pension age: Super in accumulation phase (not yet commenced as a pension) is excluded from both assets and income tests for people below Age Pension age. This is a critical planning window - a 65-year-old with $400,000 in accumulation super and a 67-year-old partner can structure to maximise Age Pension
• Direct assets to the younger spouse: If one partner is below pension age, shifting assessable assets (investment portfolio, cash) to their super accumulation account removes those assets from the means test for the older partner. Super accumulation of the under-pension-age partner is not counted
• Spend assessable before exempt: In the years before pension age, drawing on assessable financial assets (shares, managed funds, bank accounts) while leaving super intact reduces the assessable asset base - but only creates lasting pension benefit if the spending results in genuine consumption or investment in exempt assets (home improvements)
• Home improvements as asset conversion: Using financial assets to improve the exempt family home - renovations, disability modifications, energy efficiency upgrades - converts assessable to exempt assets. Legitimate and commonly used in pre-retirement Centrelink planning
• The pension-super sweet spot: For many Australians, a combination of a modest Age Pension supplementing super drawdown is the optimal retirement structure - providing a government-backed income floor while preserving super capital for longer. This requires keeping assessable assets below the full pension threshold ($314,000 for single homeowners in 2025-26)

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Once you retire, the challenge shifts from accumulation to distribution - ensuring your assets last your lifetime. The structure of your retirement income determines both tax efficiency and longevity protection.

• Account-based pension (ABP): The most common retirement income vehicle - your super balance converts to an ABP paying a minimum percentage per year (4% for ages 65–74, increasing to 5% from 75–79, etc.). Earnings are 0% taxed inside the pension. No maximum drawdown - you can draw more than the minimum
• Transfer balance cap: In 2025-26, $1.9 million can be moved into pension phase (per person). Amounts above the cap must remain in accumulation (15% tax on earnings) or be withdrawn. Couples can have up to $3.8 million in pension phase collectively
• The bucket strategy: Divides retirement assets into three 'buckets' - cash/short-term (2–3 years of income, for living expenses), medium-term (bonds and balanced assets, 3–7 years), and long-term (growth assets, 7+ years). Rebalance annually - sell from growth into cash when markets are up, wait when markets are down
• Annuities as longevity insurance: A lifetime annuity from an insurance company (Challenger, TAL) pays a fixed income for life regardless of investment returns or how long you live - transferring longevity risk to the insurer. Annuities offer Centrelink means-testing advantages from 1 July 2019 under the Challenger/government framework
• Age Pension as the backstop: For many retirees, the Age Pension provides a valuable income floor - particularly in market downturns. A retirement strategy that maintains eligibility for even a part-pension provides significant security, reducing the risk of running out of money entirely
• Health and aged care planning: Budget for increasing healthcare costs as you age - private health insurance premiums, out-of-pocket medical expenses, and potential aged care contributions. The Support at Home reform from 1 July 2025 changes how home care is funded - understand these changes in pre-retirement financial modelling

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The decisions made in the decade before retirement shape income for life - and getting them right is worth investing in. Roopon members access exclusive discounts on financial advice, legal services, and the professional guidance that makes pre-retirement planning accessible and effective.

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