A Transition to retirement
This is a guest post from My Wealth Solutions
The Australian Government has made it possible for you to keep working while drawing down some of your super benefits. The policy, called ‘Transition to Retirement’ (a gradual move to retirement), allows you to supplement your salary and maintain a comfortable lifestyle. You can also use the policy to save tax and boost your super before you retire.
There are a multitude of reasons why many Australian will work past the age of 55. There are many that still need the money to retire. Others would like to be kept busy and flourish with the social interaction and mental stimulation that their job and other work mates offer. Many will slowly reduce their hours at work and ease into retirement.
Making the transition to retirement
There are two ways to use a ‘Transition to Retirement’ (TTR) pension:
- You can keep working full-time and boost superannuation
- You can reduce your current work hours to soften the drop in your income
Once you reach preservation age, which may be as young as 55, you have the ability to draw down on a pension from your superannuation even if you are still currently working.
Super and your pension
Although you cannot withdraw as a lump sum, if you’re under the age of 65 and currently still working, you can withdraw a sum of your super to a super pension of between 4% and 10% of your pension account balance each financial year.
If your current fund does not offer opening a pension account, you can open a pension account with different super fund.
Pay less tax
Employer contributions and salary sacrificed contributions are taxed at a low rate when they go into super. This is likely to be lower than your marginal tax rate.
Slow down to retirement
A transition to retirement pension is a good way to supplement your current employment income if your current income is not enough to maintain your lifestyle. This also gives you freedom to spend time doing other things besides work.
Are there any benefits?
Get a financial boost in your super savings.
If your workplace has salary sacrificing, do this to take advantage of pre-tax income going into your super and further boosting your super savings
Did you know that investment returns on a super pension account are not taxed?
Many pensioners do not understand that when you turn 60, you won’t have to pay any tax on your pension income.If you are under the age of 60 you will get a tax rebate on your pension income.
Things you should know
Before setting up a pension for transition to retirement, there are few things you need to consider. You need to understand if this type of income stream is right for your current and future circumstance and whether it works with your overall super plans.
Some points you need to think about:
- Check your fund type – TTR pensions are only available for members of accumulation super funds.
- Members of defined benefit funds cannot access a TTR pension.
- Check on your life insurance policy – If you have life insurance with your super fund, check with the fund or your financial adviser to make sure your life cover does not reduce or cease.
- Check your social security entitlements – as there may be implications for you or your partner’s pension and other entitlements. Speak to your financial advisor about this.
- Work out your retirement strategy – Do you want to cut back on work or do you want to boost your super?
- Decide on your income needs – Take into account all of your income sources to work out how much money you should draw down from your super.
- Check the tax implications – This depends on many factors, so find out the tax implications for your situation from your financial adviser.
Transition to retirement can be complex, we strongly suggest you discuss your options with your super fund and seek financial advice. My Wealth Solutions offer some great information on all financial planning in Brisbane.