Wind down work, not your lifestyle

The recent announcement by the Federal Government that the Age Pension eligibility age will rise to 70 is forcing many Australians to rethink their retirement plans.

Your superannuation offers opportunities to wind down from work when you choose, without winding back your income.

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.  

Discover more

To discover how a transition to retirement strategy can help you achieve your goals, contact us today.

*Names are for illustration purposes only

The information provided in this article is for general education purposes only and does not constitute specialist advice. It does not take into account your objectives or needs. It should not be relied upon for the purposes of entering into any legal or financial commitments.