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Making the most of an unexpected early retirement

Written and accurate as at: Dec 15, 2023 Current Stats & Facts

Even the best-laid plans don’t always turn out exactly as you expected, but sometimes life throws you a curveball that sends everything veering off track. Take, for example, the growing number of people who have been forced out of the workforce years before they intended to retire.

Whether it’s due to redundancy, ill health or needing to care for a loved one, having your working years cut short can cast you into a world of uncertainty. If you’ve found yourself in this position, here are a few things that might help you brace for what’s ahead.

Take stock of your finances

Having retirement foisted on you by some unforeseen event can easily throw off your retirement plans — or, for some people, reveal them to be woefully off track. Give yourself time to process the news, but once the shock wears off it can be a good idea to start taking stock of your finances. 

Review your savings, liabilities, and any income you receive from investments. If you haven’t already, consider working out how much you spend in a typical month too. If your budget is looking a bit tight, it might be a good idea to cut certain items out or replace them with cheaper alternatives. 

Understand your entitlements

If your employment has been terminated, there’s a chance you’ll receive a payout from your employer for any unused annual leave and long service leave. And depending on the terms laid out in your contract, you might also be entitled to a redundancy payment.1

Genuine redundancy payments — which are handed out in cases where a business no longer needs an employee’s role to be done by anyone — are taxed at special rates. Part of the payment may be tax-free depending on your years of service, while any excess amounts are concessionally taxed.

There are other types of termination payments, such as golden handshakes and gratuities, which are also concessionally taxed, but usually to a lower extent. 

Tax treatment of termination payments can be quite complex, so it might be worth speaking to a tax professional. They can help you understand how your termination payment works and what your obligations are come tax time.

Find out when you can access your super

A surprise retirement can be made much less stressful if you’re able to access your super. Under current rules, you can withdraw your super as a lump sum or convert it into an income stream (known as an account-based pension) if you have met a retirement condition of release. For example, if you:

  • Have reached your preservation age (at least 59 years old as at 1 January 2023) and have no intention to be gainfully employed again, or 
  • Were at least 60 years of age at the time of ceasing gainful employment, or
  • Are at least age 65.

If you are over age 60 and your super doesn’t contain an untaxed element, any lump sum withdrawals or account-based pension payments you receive are typically tax-free.

Having an account-based pension can serve as a much-needed replacement for the income you were receiving from work (while also allowing the bulk of your super to remain invested). Just keep in mind that an early retirement means your super will need to last longer than originally planned, so crunch the numbers to find out how much you can afford to spend each year.

Stay socially connected

Even for those whose retirement goes according to plan, there’s always a chance that depression will rear its ugly head. You might appreciate no longer having to wake up early or board an overcrowded train. But retirement is still a huge change, and without the structure and purpose that gave each day of the week an identity, it’s easy to slip into a funk.

To counter this, make an effort to stay socially connected. Stay in touch with old coworkers you were close to and seek out opportunities to expand your social circle, such as by joining event groups or volunteering. Hopefully retirement will give you time to nurture closer relationships with your loved ones too.

At the end of the day, it can help to remind yourself that most people look forward to the day they can escape the daily grind and enjoy their golden years. But if an early retirement is proving too difficult to adjust to, it might be worth speaking to a mental health professional. 


1 Fair Work Ombudsman

2 Australian Tax Office

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