How to prepare for retirement when you're 3-6 months away
Written by Glen James
Host of the Retire Right & money money money (formerly my millennial money) podcasts & author of The Quick-Start Guide to Investing.
As retirement closes in, especially in those last 3-6 months, you might feel a mixture of excitement and perhaps a little anxiety. Totally normal reactions to have! To help you steer away from working life and start taking a turn towards your lifestyle years here are the things you need to focus your time on:
#1 prepare for the psychological shift
Let’s be real—retirement isn't just about leaving the workforce and living off your savings. There’s a psychological shift that happens when you leave behind the structure and routine of work. Some retirees experience a ‘sugar hit’ of excitement initially, but without a clear sense of purpose, that excitement can fade. It’s important to ask yourself, ‘What am I retiring to?’ rather than just ‘What am I retiring from?’ Having a plan for how you want to spend your time is just as crucial as having a solid financial plan.
#2 trial your retirement lifestyle
Speaking of planning, I always encourage people to trial some aspects of their retirement lifestyle before fully diving in. Whether it's joining a social club, travelling, or spending more time with family, try it out first. This way, you’ll know if that campervan life or constant golf games are truly what you want—or if they just sound nice on paper. You don’t want to invest in something only to realise it’s not for you. Give yourself a week trialling the activities and lifestyle you’re considering, and see if it’s where you’d like retirement to start.
#3 plan your retirement budget
Now let’s get into the numbers. One of the biggest misconceptions about retirement is the idea that there’s a specific age or figure you need to hit before you can retire. Sure, guidelines around comfortable retirement standards exist, but your situation is unique. Some people might live comfortably on a million dollars, while others might need more or less. It all depends on what your retirement looks like—what are your weekly expenses going to be? Are you travelling every year? Upgrading your car? Those decisions will shape your budget. If you’re unsure about where you stand, chatting with a financial adviser can be a helpful thing to do. Even a pen and paper can go a long way in understanding these numbers!
#4 consider downsizing your home
A big part of your financial retirement plan revolves around your home. For many, the family home is their biggest asset, and downsizing can free up significant capital. Moving to a smaller home or relocating could provide extra funds to enjoy your golden years. It’s a personal decision, but one that plays a key role in your overall financial strategy. Choose the living arrangement that’s right for you. Have a listen to the podcast episode on the downsizer contribution if that is something you’re considering—listen on Spotify or Apple Podcasts.
#5 factor in healthcare costs
It’s also critical to think about health and how you’ll manage the transition physically. Let’s face it, as we age, medical expenses can increase, so it's essential to factor in the cost of health care, insurance, and potential home modifications. Will you need private health insurance? Read my blog on this topic if you’re unsure. Have you considered future-proofing your home with ramps or accessible showers? These things might seem distant, but planning now can save a lot of hassle later on.
#6 understand your superannuation options
And finally, we can’t talk about retirement without discussing superannuation. Whether you’re in an industry fund, retail fund, or self-managed super fund (SMSF), your super will likely be one of your largest assets. Make sure you understand how your super works, and if you're transitioning from accumulation phase to retirement phase, getting advice can be helpful. There are tax implications and potential benefits, like retirement credits or bonuses, that can make a big difference. Have a listen to the superannuation deep dive episode we recorded on the podcast on Spotify or Apple Podcasts.
At the end of the day, retirement is about more than just hitting a dollar figure. It’s about creating a life that’s both fulfilling and sustainable for the long haul. That’s the key to retiring right!
Community question
Tanya asks: should I prioritise paying off my mortgage or increasing my superannuation contributions as I approach retirement?
Glen: This is a common dilemma for many, especially for those in their 50s with a smaller superannuation balance and a significant mortgage. It’s essential to strike a balance between immediate financial peace and long-term wealth accumulation.
From a tax perspective, contributing to superannuation is often one of the most efficient ways to build wealth. However, the catch is that you can’t access that money until you turn 60 (& cease working), which can create anxiety for those who prioritise having a clear mortgage. If you're over 55, it’s generally considered best practice to lean towards super contributions with any surplus cash flow. This approach not only aids in long-term investment growth but can also lead to significant tax savings.
That said, personal finance isn’t just about numbers. It’s crucial to sleep well at night, which means considering your comfort level with debt and your overall financial situation. If paying off the mortgage gives you peace of mind, that might be the right choice for you. Alternatively, establishing an emergency fund and using an offset account can provide flexibility, allowing you to contribute to superannuation while keeping some cash readily available for unforeseen expenses.
Ultimately, it’s about finding the strategy that aligns with your values and financial goals while keeping in mind the long-term implications for your retirement.
