Transitioning to Retirement

The nature of retirement is changing and so are the rules. If you want to reduce your working hours or even pay less tax without sacrificing your income, a Transition to Retirement pension could be the answer.

Longer life expectancies mean many Australians are spending more time in retirement than ever before, thus increasing pressure on the social security system which in turn, emphasises the importance of accumulating superannuation. As a consequence, the Government is encouraging us to remain in the workforce beyond the traditional retirement age.

Access your Superannuation while still working

Using a Transition to Retirement (TtR) pension you can access between 4-10 per cent of your super balance, as long as you’ve reached your preservation age (between 55 and 60 depending on the year you were born) AND while you are still working, up to age 65.

A better lifestyle on the same income

A transition to retirement strategy allows you to supplement your income by drawing a regular pension payment from your super fund. There are a few ways you can benefit:

• Continue to work full-time but reduce your tax by salary sacrificing some of your income into super whilst taking a tax-effective pension to supplement any difference;
• Moving from full-time work to part‑time work and replacing lost salary with income from the transition to retirement pension; and
• As a business owner/operator, you could use a pension to supplement your income needs in quiet times.

Perhaps most importantly, a TtR pension may also help reduce your overall tax bill while boosting your total super balance before you retire while the tax-effectiveness of the pension will help lower your overall personal tax liability. The TtR strategy comprises three simple elements:

1. You contribute part of your salary to super (where it is generally taxed at just 15 per cent – rather than at your marginal tax rate).
2. You then rollover your super money into a tax-free ‘transition to retirement’ pension, and
3. You commence drawing the pension as an income stream to supplement (top-up) your reduced salary (due to the amount you salary sacrificed).

Make TtR work for you

While the above steps sound relatively simple and the benefits can easily outweigh the time / cost of putting it in place, implementing a Transition to Retirement strategy does require some additional work, so we strongly recommend you seek our advice prior to embarking on any such program.

For more information or to review the merits of a Transition to Retirement strategy for your circumstances please give us a call on 02 9633 3300 or email us at enquiry@adviserfp.com.au to discuss.