Transition To Retirement
Transition to retirement is a tax effective strategy that may allow you to access your super funds and continue working at the same time.
You might want to reduce your working hours - perhaps easing your way towards retirement by working part-time - without lowering your standard of living.
Transition to retirement (TTR) pensions allows you to convert part of your super savings into an income - even while you're still working. So you can work fewer hours and still live the way you want to.
Transition to retirement is not just for people cutting down their working hours. Even if you're still working full-time, you can combine transition to retirement with another strategy, salary sacrifice, and use the tax advantages to get your super to grow faster.
So there are two reasons - lifestyle and tax efficiency - why a TTR strategy might be appropriate for you.
Who should consider it?
You should consider a transition to retirement strategy if:
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You're aged 55 or over
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You're working, either full-time or part-time
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You're taxable income is at least $34,000 p.a.
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You're interested in saving tax and boosting your super savings
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You would like to reduce your working hours
Why is it tax effective?
A Transition To Retirement strategy is tax-effective for 2 main reasons.
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You pay less tax on the same income; that's because, once your taxable income exceeds $34,000, your marginal rate of income tax rises from 15% to 30% (plus Medicare levy), which is higher than the tax rate of 15% on super contributions.
Example: Tax advantage of salary sacrifice and TTR strategy
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Current Situation
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Salary Sacrifice
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Annual Salary
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$80,000
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$80,000
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Less Salary Sacrifice
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-
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-$40,000
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Taxable Income
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$80,000
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$40,000
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Tax
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-$18,000
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-$6,000
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Medicare Levy
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-$1,200
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-$600
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TTR Pension Payment
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-
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$27,400
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After-tax Income
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$60,800
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$60,800
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Super Contributions Tax
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-
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$6,000
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Total Tax Paid
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$19,200
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$12,600
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Tax Advantage of Salary Sacrifice
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$6,600
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You pay no tax on investment earnings once you convert your super account to a pension account, the tax rate on your investment earnings reduces from 15% to 0%. So, given the same pre-tax investment returns, the after tax-return on your pension account will be higher.
Example: Tax advantage from reduced tax on investment earnings in a Pension Account
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Super Account
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Pension Account
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Account Balance
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$400,000
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$400,000
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Investment Return before tax (assumed)
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7.5%
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7.5%
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Tax on investment earnings
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15%
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0%
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Investment return after tax
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6.4%
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7.5%
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| After tax investment earnings |
$25,600
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$30,000
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|
Tax advantage of pension
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|
$4,400
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How does it work?
Alpha Financial Services will help you to convert all, or part, of your super account into a TTR pension. This does not give you access to a lump sum, but i does allow you to receive a regular pension income. We will help you to set up a pension account for you and advise you on how much income you need to draw.
What happens when you finally retire?
Once you retire permanently, or when you reach age 65, the restrictions that apply to TTR pensions are lifted. That means:
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There is no longer any upper limit on your annual pension payments
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You have full access to your remaining capital at any time as a lump sum or series of lump sums, whatever suits you best.
Contact Us
For a free half hour consultation to determine whether we can help you, contact us via this website or call 1300 35 88 33.
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