The Three Stages of Retirement Preparation
What to expect when you’re expecting to retire: A new government report outlines the three stages of retirement common for older Australians.
The government Productivity Commission report released this month, Housing Decisions of Older Australians, covers older people’s attitudes on a range of housing and retirement issues including:
- Planning for retirement
- The family home
- Debt and home equity release products
- Downsizing
- Housing preferences
The report analyses a Commission survey of 1,500 senior Australians aged 60 years and older, as well as ABS data from the past decade, creating a strong analysis of how older Aussies really think. The survey was representative of our nation’s population in terms of age, gender, location, and socio-economic background.
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The three stages of retirement
According to the report, you should expect a period of transition into full-time retirement, during which you might continue to do some part-time work while enjoying more time to spend with your loved ones. From that point on, your retirement can be as active or passive as you wish until your health begins to decline.
You should expect that sometime from 75 to 85, declining health will restrict the leisure activities you are able to participate in. This will also require changes to your housing, whether it means modifications to your home, a move to a retirement village, or even residential aged care.
The Commission’s report talked about what you can expect during the three stages of retirement:
Spending habits during retirementFrom the day you retire, it is realistic to expect that your income will decrease gradually from that point onwards. But never fear – you can also expect that your level of expenditure to decrease overall, and the things you spend money on will change during the three stages of your retirement.
- Housing: From your Active retirement years of 60 onwards, people typically spend less on housing.
- Food: From your Active retirement years of 60 onwards, people typically spend less on food – but it will appear to make up a larger proportion of your overall expenses.
- Health: Those aged 65-75 in the Active or Passive group spend more than other age groups on private health costs. Then from 75+ onwards, your private costs decrease but you can expect to spend the majority of your income on public health costs; you have entered the Frail stage.
- Travel and recreation: New retirees in the Active stage still spend almost as much on transport and recreation as workers. From 65 onwards, however, you can expect to spend less on transport and recreation – this can be viewed as the Passive stage.
Cost of housing during retirement
Social services offered during three stages of retirement
The most attractive way to retireIt seems clear from this summary that the ideal place to be when you retire is a healthy home owner. When you look at what you can expect during the three stages of retirement, the cost of housing during retirement, and the social services on offer, home owners come out ahead on every front.For this reason, paying off your home loan before you retire or early into your retirement will be a good move. If the interest rate you’re paying is hurting your ability to retire free of a mortgage, compare home loans on offer across the market on our website.
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What to
expect |
Active | Passive | Frail |
---|---|---|---|
Ages 60-75 | Ages 65-85 | Ages 75+ | |
Time | More time for leisure,
travel, and family |
More passive activities,
travel close to home |
Restricted mobility,
limited activities |
Work | Part-time work | Unpaid volunteer work | Reduced ability to work |
Finances | Increased spending
on leisure, but majority still save money |
Increased spending
on health |
Increased spending
on health and aged care |
Housing | Housing upgrade | Housing down-sizing
or modifications |
Retirement village
or nursing home (residential aged care) |
Source: Rice, 2014, cited by Productivity Commission, 2015. | |||
Type of Retiree | Type and cost of housing | ||
Home owners | Free
(Government assesses tax as if you were earning rent: “imputed rent”) |
||
Own land and dwelling | |||
Secure living arrangement | |||
Home exempt from Age Pension asset test | |||
Private rental | Market rent charged by landlord | ||
Lease on dwelling | |||
Risky living arrangement | |||
Eligible for Cth Rent Assistance | |||
Social housing | Rent at fixed proportion of income | ||
Lease on dwelling | |||
Secure living arrangement,
often lifetime tenure |
|||
Government-subsidised rent | |||
Mobile home community
(e.g. caravan park) |
Purchase price of home,
ongoing fees, exit fee on departure |
||
Own dwelling, lease on land | |||
Risky living arrangement | |||
Age pensioners eligible for Cth Rent Assistance
Home exempt from Age Pension asset test |
|||
Retirement village | Ongoing fees,
refundable lump sum at entry, exit fee on departure |
||
Long-term license to occupy dwelling | |||
Secure living arrangement | |||
Usually not eligible for Cth Rent Assistance
Entry contribution exempt from Age Pension asset test |
|||
Residential aged care | Ongoing fees – subsidised
Optional, refundable lump sum at entry |
||
Life right to accommodation | |||
Secure living arrangement | |||
Means testing determines fees payable
Value of accommodation included in means test up to a capped amount |
|||
Type of Retiree | Social services available | ||
Home owners | Home care for eligible people (low income) | ||
Government-subsidised home modifications
for eligible people |
|||
Funded by Federal Commonwealth | |||
Private rental | Home care for eligible people (low income) | ||
Government-subsidised home modifications
if landlord consent given |
|||
Funding depends on location | |||
Social housing | Home care and other services
for eligible people (low income) |
||
Home modifications made by housing provider | |||
Funded by states and territories | |||
Mobile home community
(e.g. caravan park) |
Basic services, including home care | ||
Government-subsidised home modifications
for eligible people |
|||
Funding depends on location | |||
Retirement village | Varies by village, including home care | ||
Subsidy available if home modification
not offered by village |
|||
Funding depends on location | |||
Residential aged care | Ongoing care in aged care residence | ||
Age- and health- specific accommodation | |||
Funded by Federal Commonwealth |