Transition To Retirement

If you’re over 55 and have super savings, a ‘Transition to Retirement’ (TTR) strategy could help you boost your super significantly without cutting back on your lifestyle.

The TTR strategy could even allow you to reduce your hours at work and supplement your reduced salary with payments from your super.

This strategy generally works best if you:

• are aged 55 or over.
• are still working full-time.
• are earning at least $45,000 pa and
• have some existing superannuation.

The Transition to Retirement strategy allows you to:

• make the most of tax benefits by reducing the tax on your income.
• Increase your superannution savings in the lead up to retirement.
• provide flexibility to your working hours.

The use of the transition to retirement provides you with two options:

1. You can continue to work full-time until retirement and replace your salary or business income with a pension, or
2. You can reduce the hours you work while supplementing your income via a TTR pension from your superannuation.

 How does it work?

• The ‘Transition to Retirement’ rules allow people who are 55 or over to access their super while still working. Basically, they allow you to roll some or all of your current super into a ‘non-commutable’ income stream which pays you a regular income but does not allow you to withdraw a lump sum.
•  The regular income is used to supplement the foregone income which is salary sacrificed into superannuation. Because salary sacrifice uses before-tax dollars, you can actually contribute more to super than you withdraw, without missing the income.  For example, for every $100 earned by a tax payer in the highest marginal tax rate (including Medicare levy), you would have to pay $46.50 to the government in tax. If you salary sacrifice the same amount, you only pay 15% tax on the contribution or $15. That’s an extra $31.50 going into your super, for every $100 salary sacrificed instead, of to the government.
• Pension income is concessionally taxed. A 15% tax rebate applies to your pension from preservation age (currently 55) until 59.  Once aged 60, pension income is tax free and therefore this strategy provides greater benefit after this age.
• Another benefit of using an account based pension is investment earnings are tax free opposed to 15% tax on earnings in accumulation phase.
•  A minimum drawdown of the pension account balance must be taken each year in line with your age (starting from 4%pa for those aged 55-64).  No more than 10% of the account balance can be drawn per year. The minimum and maximum income you can receive is calculated at the time you commence your Transition to Retirement pension and adjusted annually via account balances as at June 30 each year.  Minimum payments are pro-rated where the pension commences during the year.

The importance of advice

It is important to obtain advice from a licensed, authorised and independent financial adviser before making any decisions concerning a Transition to Retirement strategy.

 Important points to consider include:

• Do you have a defined benefit superannuation fund?
• Will your Salary Sacrifice have an impact on your employer super guarantee contributions?
• Appropriate level of Salary Sacrifice, particularly in relation to the current contribution caps that apply to super.
• Income from other sources can impact the benefits of a TTR strategy.
• Limited super savings may also reduce the potential benefits.
• Potential impact on any Centrelink entitlements?

 Please contact our office to find out if a Transition to Retirement strategy can benefit you.