A gradual move to retirement...
There are many reasons why people continue to work past age 55. Some need the money. Others enjoy the mental stimulation and social interaction that a job offers. Some will reduce their working hours as a way to slowly ease into retirement.
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, 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.
Making the transition to retirement
There are two ways to use a 'transition to retirement' (TTR) pension:
- Keep working full-time and boost super
- Reduce work hours and soften the drop in income
Once you hit preservation age (55 for many people), you can draw down a pension from your super even if you are still working.
If you are under age 65 and still working, you can withdraw between 4% and 10% of your super account balance each financial year. You cannot withdraw money as a lump sum.
Not all super funds offer a pension option, so you may need to change funds if you want to take your money out as a pension. Before you do, Contact Us to discuss your options.
Boost your super savings
Your super balance will keep growing as your employer continues to make contributions into your super account.
If you choose to salary sacrifice some of your pre-tax income into your super, you can further boost your super savings. This is because your salary sacrifice contributions are taxed at a lower rate when they go into your super.
Pay less tax
You will enjoy generous tax concessions for both retirement income streams and super contributions. And when you turn 60, you won't pay any tax on your pension income.
Before you set up a transition to retirement pension, you need to consider if this type of income stream is right for you and how it fits with your work and super plans.
What is your priority?
Do you want to cut back on work, earn more income or add more money to your super? Your answer will determine the approach you take.
How much income do you need?
Take into account all your income sources to work out how much money you should draw down from your super. Often people find their income needs reduce as they get closer to retirement and they can afford to salary sacrifice into super without having to replace the lost income.
Will the super pension affect social security entitlements?
Speak to a Financial Planner at Southern Advisory as there may be implications for you or your partner's age pension and other entitlements.
How tax-effective is the arrangement?
This depends on many factors, so find out the tax implications for your situation by Contacting Us.
How will the super affect my life insurance?
If you have life insurance with your super fund, check with the fund if there are any implications. In some cases, your life cover could reduce or even cease.
Transition to retirement is a flexible option that allows you to work longer and retire later and rewards you for staying in the workforce. As it can be complex, we strongly suggest you discuss your options with your super fund and speak with Southern Advisory to find out what strategy is right for you.