Transition to retirement pensions – simple, tax-effective
By the time we reach our 50s, many Australians would like to shift down a gear, reducing our working hours in the lead up to full time retirement. However this can also mean a reduction in personal income.
The solution to enjoying a lighter working week without a drop in pay, can be a transition to retirement (TTR) pension.
More money to live on
A TTR pension is available once we reach what’s known as ‘preservation age’- between 55 and 60 depending on your birth date. Using a TTR pension it’s possible to withdraw up to 10% of your super balance each year to provide extra money to live on.
A chance to grow your nest egg
A TTR pension can also be used in conjunction with salary sacrifice to give your nest egg a valuable boost.
Super contributions made through salary sacrifice are lightly taxed at 15% - probably less than your personal tax rate. The tax savings make it possible to receive the same after-tax income, possibly more, while also growing your super.
Less tax, more in super
To see how effective this TTR pension strategy can be, let’s say Jim* (age 60) earns $80,000 and has $250,000 in super.
Jim arranges to salary sacrifice $27,600 into super each year. Along with his employer’s compulsory contribution this brings his pre-tax contributions to $35,000 annually – the maximum Jim can contribute this way each year.
To make up the income shortfall, Jim commences a TTR pension, receiving an income stream from his super worth $9,800 annually.
In addition to growing his nest egg, Jim’s annual income tax falls from $18,747 to $9,149 - a saving of $9,598. Even after allowing for tax on his super contributions, Jim enjoys total tax savings of $5,458.
To discover how a transition to retirement strategy can help you achieve your goals, contact us today.