Make work optional at age 55: A Strategic Guide

Thinking about retiring at 55? It’s possible with the right planning!

Written by Lance Swansbra

I’m sure everyone (except the team at Braeside Wealth 😊) have had that feeling of waking up for work on a Monday morning and thinking to themself, how much longer am I going to have to do this for? Well it doesn’t have to be like that, over the years we’ve been fortunate enough to help lots of people make work optional. For many people, the idea of being able to retire at 55 seems like a dream, one reserved for the ultra-wealthy or lottery winners. But with the right planning, discipline, and investment strategy, retiring early is achievable. It’s not about luck, it’s about making smart financial decisions well in advance.

This guide will take you through the three key steps and will walk you through everything you need to consider if you want to make work optional at age 55 and enjoy financial freedom.

Step 1 - How Much Money Do You Need to Retire at 55?

The first step is understanding how much you need to retire comfortably. This is key, without a goal to work towards, life can feel like running a marathon without knowing where the finish line is. As financial advisers we have tools at our disposal to help accurately estimate this figure. If you’re not working with an adviser, a common rule of thumb is the 4% rule, which suggests you can withdraw 4% of your investments each year without running out of money.

Here’s an example:

• If you need $60,000 per year to fund your lifestyle, you’ll need around $1.5 million in investments ($60,000 ÷ 0.04).

• If you need $80,000 per year, you’ll need around $2 million.

Of course, these figures don’t consider factors like inflation, investment returns, age pension or potential part-time work, but it’s a start.

The Superannuation Challenge: Access Restrictions Before 60

One major hurdle to retiring at 55 is superannuation access. Generally, you can’t access your super until you reach preservation age, which is 60 for most people under the current rules. That means if you retire at 55, you’ll need non-super investments to fund your lifestyle for at least five years, maybe even longer.

Other Factors to Consider

• Inflation: The cost of living will rise over time, so ensure your retirement fund grows accordingly. For example, if at age 55 you need $80,000 p.a. to pay the bills and enjoy yourself, by the time you’re 75, you’ll probably need around $130,000 p.a. to enjoy the same standard of living.

• Healthcare Costs: Medicare covers some expenses, but private health insurance and out-of-pocket costs can add up. A lot of people assume they’ll reduce their living expenses in retirement, unfortunately sometimes what you save in some areas is offset by higher medical expenses.

• Longevity Risk: Australians are living longer, meaning your money needs to last longer. In fact, an Australian male aged 50 years can expect to live for roughly another 33 years and if you’re a female, you could be looking at another 37 years. Just about everyone tells us, they won’t make it that long, but you should be planning for this to happen.

Step 2 - Build a Tax Effective Non-Super Investment Portfolio

Since you’ll need non-super assets for years 55-60, focus on building wealth outside of super. Some options include:

• Shares & Exchange Traded Funds (ETFs): A diversified portfolio of Australian and international stocks can provide tax effective growth. Diversified ETFs and managed funds are a great way to simplify this approach.

• Investment Properties: Rental income can help bridge the gap before accessing super. Negative gearing can help to manage tax while you’re working and selling the property after retirement can help to reduce capital gains tax.

• Growth and education bonds: Growth bonds are an investment structure that can help to build long term wealth whilst also capping taxation. Education bonds are a special type of growth bond that can help to fund education and potentially provide further tax benefits.

Diversification is your friend

You hear a lot of people these days trying to sell the idea of building wealth through a single investment class, e.g. I own 15 investment properties, and you should too, or I’m a day trader and here’s my hot tip. Investment diversification is crucial because it helps reduce risk and smooth out returns over time. By spreading investments across different asset classes, such as shares, bonds, property, and cash, you avoid putting all your eggs in one basket.

This means if one investment performs poorly, others may perform well, balancing your portfolio. Diversification also protects against market volatility, economic downturns, and industry-specific risks. It enhances long-term stability and ensures you’re not overly reliant on any single investment. Ultimately, a well-diversified portfolio increases the likelihood of achieving consistent growth while minimising potential losses, making it a smart strategy for wealth building.

Debt recycling

Debt recycling is a powerful strategy that allows people to convert non-deductible debt (such as a home loan) into tax-deductible investment debt, helping to build wealth over time.

Instead of simply paying down your mortgage, you gradually replace it with investment debt. This is done by using available equity in your home to invest in income-generating assets like shares or property. The income and potential tax benefits from these investments can then be used to reduce your home loan faster, while also growing your wealth.

While debt recycling can be highly effective, it’s not without risk, market fluctuations and interest rate changes can impact returns.

Maximise Your Super Early

Even though you can’t access super before 60, super remains the most tax-effective way to save for retirement. Here’s how to take advantage:

• Salary Sacrifice & Concessional Contributions: Contribute up to the concessional cap ($30,000 per year in 2025) to reduce your taxable income and boost retirement savings.

• After-Tax Contributions: You can contribute up to $120,000 per year (or $360,000 using the bring-forward rule).

• Just remember, you should be planning not to access this money until you turn age 60.

 Step 3 - The Three-Bucket Strategy for Early Retirement

Since you can’t access your super until at least 60, a strategic three-bucket system can help ensure you have enough money to retire early:

Bucket 1: Short-Term (Years 55-60)

This bucket covers the years before you can access super, and you may wish to redeem some of your pre-retirement investments to create this bucket. If you need $80,000 p.a. then you may want to hold around $500,000 in this bucket, you could consider investing in:

• Cash savings (maybe say a bit more than a year’s worth of income, e.g. say $100,000)

• Term deposits (maybe around two years’ worth of income requirements, say $260,000)

• Conservative managed funds (these often contain a blend of defensive and growth assets, with an emphasis on defensive assets like government bonds)

You want liquid, low-risk assets that provide reliable income. This is important, as you will be spending this bucket over five years. If investment markets fall heavily in year one, you may not have this money invested long enough to enjoy the recovery, thus you generally want stable investments here.

Bucket 2: Medium-Term (Years 60 to 75)

Once you reach 60, you should’ve exhausted most of bucket one and you can start drawing from your super tax-free (if in pension phase). You can currently hold $1.9m each in a tax-free pension account, making the most of this is generally a great idea. This bucket is going to be invested for the long term, so if you have the appetite for it, you should be able to hold more growth assets. You’ll still want to hold some cash, term deposits and conservative investments, but you may also wish to supplement this with growth assets such as shares, managed funds or ETFs.

Bucket 3: Long-Term (Years 75+)

Superannuation pensions aren’t designed to last forever. The amount you need to draw from your pension will generally increase as you get older (e.g. by the time you reach 95, you need to be drawing 14% of your account balance each year as pension payments). You can obviously spend this extra money, give it away or you may wish to invest it in growth assets or tax effective structures such as growth or education bonds.

 Final Thoughts: Can You Really Make Work Optional at 55?

Yes, retiring at 55 is possible, but it requires planning, discipline, and smart investing. By focusing on building a strong investment portfolio and structuring your finances wisely, you can enjoy financial freedom years ahead of the traditional retirement age.

The key takeaway? Start planning early. The sooner you begin, the easier it will be to create a sustainable retirement strategy that allows you to enjoy life on your terms.

Start early, make learning engaging, and be sure to model good financial habits yourself. The more your kids understand about money, the better prepared they’ll be to handle their financial future. By taking these steps today, you’re setting them up for a secure and successful tomorrow.

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The information in this article is general information and does not take into account any person’s individual situation. You should always do your own research, or seek professional advice to assist you in making an informed decision about what suits your needs.