Even if you’re nearing retirement age you might not be looking to leave the workforce just yet. Maybe you want to save more money or perhaps you enjoy the interaction and mental stimulation.
Whatever the reason, a transition to retirement (TTR) strategy could provide financial flexibility as it enables you to access a portion of your super while continuing to work full-time, part-time or casually.
Here we answer some of the commonly asked questions about TTR strategies.
Generally you can access your super under a TTR strategy when you reach your preservation age. This will be between 55 and 60 depending on when you were born.
A TTR strategy will allow you to access up to 10% of your super through periodic payments. And, if you want to keep working, you can also continue receiving an income from your employer.
Usually, your two options with a TTR strategy include either working less, or, working the same hours while sacrificing some of your salary into super. In both cases, you can use your TTR pension to supplement any reduction in your take-home pay.
If, after you reach your preservation age, you decide you’d rather retire from the workforce, you can take your super as a lump sum or move your super into an allocated pension (also known as an account-based pension). This provides you with a regular income stream in retirement and you are not limited to what you can withdraw.
Up to age 60, the taxable amount of your income from a TTR pension is taxed at your marginal tax rate, less a 15% tax offset. Then, once you turn 60, the income you receive from your TTR pension will be completely tax-free.
Because of the different tax treatment that applies to a TTR pension, compared to the way employment income is taxed, you could boost your super using tax-effective salary sacrifice contributions while topping up your income with a tax-effective income stream.
So, by replacing some of your salary with income from a TTR pension, you can draw a smaller amount from super and receive the same amount in your pocket. This means that your super savings should still grow each year.
With a TTR pension, you can withdraw between 4% and 10% of your super account balance each financial year. It’s also worth noting that a TTR pension, like an allocated pension, is based on the amount you have saved in your super. It does not guarantee an endless income.
There are a number of things to think about when it comes to TTR strategies:
To find out more about TTR strategies, please contact your adviser.
Source: AMP
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