The Three Stages of Retirement Preparation

4 December 2015

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.

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


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

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