Transition to Retirement – Boost your super without reducing your income

As we approach retirement we are all looking for ways to make our money work harder for us to bring that retirement date back a little earlier or provide that bit more for our retirement spending.  One way to do this is to employ a Transition to Retirement strategy.

Current legislation has made it possible for you to keep working while drawing down some of your super benefits.  The strategy, known as a Transition to Retirement, was implemented to allow you to supplement your salary and maintain a comfortable lifestyle while reducing your working hours.  Using the same tax and super legislation, you can make tax effective super contributions, receive a tax effective pension payment while still receiving some salary to achieve the same level of income.

A Transition to Retirement strategy works by allowing you to access your superannuation savings in a form of a non-commutable pension, while you continue to work.  This means that you cannot make lump sum withdrawals and are restricted to pension payments pension payments between 4% and 10% in any given year.  While you are receiving a concessionally taxed income from your pension (after age 60, it is tax-free), you can also salary sacrifice into superannuation and only be charged the super tax rate of 15% (30% if your taxable income exceeds $300,000) as opposed to your marginal tax rate – which could be up to 46.5%.  This effectively gives you more money in your super and saves you paying more personal tax.

What does this mean for me?

If you have a Transition to Retirement Strategy in place, you will benefit from the following:

• Pension accounts are tax free – this saves the fund paying 15% tax on income and 10% tax on realised capital gains (for investments held over 12 months) on your superannuation balance.
• Reduced tax rates on pension payments – only taxable components of pension payments made to people under age 60 are taxable and a 15% rebate may apply, reducing your tax on this income right down
• Reduced personal tax – Lower tax rate on your personal income as salary sacrifice contributions reduce your taxable income.
• Higher super contributions – with less tax taken out of your salary sacrifice contributions, there is more money held in your superannuation working for you for your retirement.

Case Study

Sally is age 56 and is currently receiving an income of $100,000 p.a. gross or $73,553 net.  She currently has a superannuation balance of $500,000 ($100,000 tax-free).  If Sally were to employ a Transition to Retirement strategy she could achieve the same take home salary ($73,533) while increasing her final retirement balance by approximately $73,490 by retirement at age 65.   (Assuming a 7.3% return and Indirect Cost Ratio of 2.0%)

How can we help?

If you are approaching or have reached preservation age (currently around 55) you should contact our office for a review of your financial position as a TTR strategy may be appropriate for you.  We can complete an assessment on the levels of salary sacrifice and pension payments that would provide the best outcome for your situation.

Don’t forget, you can refer a friend.  If you know someone in this position that you think this strategy may benefit, please do not hesitate to refer them to our office for a no-obligation free consultation.