Episode Details

The goal of early retirement is one many Australians aspire too. And certainly, when thinking about achieving Financial Autonomy, retiring early is very often baked into those goals.

But what is the best way to bring that goal to reality, given the uniqueness of our system – superannuation, franking credits, negative gearing, and means tested Aged Pensions, just to get you started.

The approach I'm going to take you through today is a multi-phase approach that I've built specifically for the Australian early retirement landscape. Its aim is to use the opportunities we have, such as franking credits and superannuation, to get you to early retirement as quickly as possible.

We've actually built a special PDF just for this post. I've put all of the diagrams in there for you. You know what they say – a picture tells a thousand words. And I certainly think visualising this approach is helpful. So ideally have that in front of you as you consume this episode, but if that's not practical, then at least download it latter.

Early Retirement for Australians Download

To survive in our modern world, you need income. Long gone are the days where we grew all our own food, hunted for our meat, and lived a subsistence life. So retiring early necessitates solving the problem of how will you generate the income you need to meet your expenses, if you cease being in your current paid employment role.

Let's start with the helicopter high up in the air.

We all know that in Australia we have the superannuation system to assist in funding our retirement. Considerable tax concessions are provided to encourage us to build up saving within superannuation. And then when we retire, we are able to convert our superannuation savings into an income stream, and receive even more generous tax concessions.

Income drawn from superannuation is tax free from age 60 for the majority of people. Given the tax favoured status superannuation receives, you'd likely be wise to utilise this system to the maximum extent possible to generate your retirement income after you reach age 60.

But what do you do before age 60? Well if early retirement is your goal, you need to have built up other investments, likely shares and property. In this pre-60 early retirement phase, you can rely on the income these investments produce, and you perhaps also sell them down progressively to live of the gains and proceeds of the investments, remembering that when you hit 60, you gain access to a new pool of savings – your superannuation.

Okay, so that's the overview – pre 60 you're living off investment income, and perhaps also some employment income, and I use that term loosely – it could mean as an employee, but it's just as likely to be some freelancing work, a short term contract, or as an advisor or consultant. Even if you've left your normal job, there's a good chance that whatever you find to do with your time, you'll pick up some income along the way.

Then after age 60, superannuation is the primary solution for your income needs.

Let's bring the helicopter down a bit lower now. Within these pre and post 60 phases, I believe you can break things down further. In the pre-60 phase, I've termed these two sub phases the Transition phase and the Investment Income phase. And in the post 60 phase, that can be split into the Active Retirement phase, and the Feet-up phase.

Imagine that perhaps in your 30's you've decided that early retirement is something that you aspire to. You crunch your numbers and determine the amount of income that you'd need to afford the early retirement lifestyle that you want. You could wait until you have enough investments and superannuation that you can live a total life of luxury. But most people I work with prefer instead to retire earlier, b