We love making sure our clients in both Adelaide and Broken Hill offices achieve their retirement planning goals. Two of the main areas in the years leading up to retirement and then post retirement.
The Australian Government has made it possible for you to keep working while drawing down some of your superannuation benefits. The strategy, called transition to retirement, allows you to supplement your salary and maintain your lifestyle. You can also use the strategy to save tax and boost your super before you retire.
There are two ways to use a ‘transition to retirement’ (TTR) pension:
1. Keep working full-time and supercharge your super
2. Reduce work hours and replce the drop in income
Once you hit preservation age (between 55 and 60), 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 transfer the sum of your super to a super pension and withdraw between 4% and 10% of your pension account balance each financial year.
Boost your super savings
Your super balance will keep growing as your employer continues to make contributions into your super account. Salary sacrificing some of your pre-tax income into your super will further boost your super savings.
Pay less tax
Employer contributions and salary sacrificed contributions are taxed at a low rate when they go into super. This is likely to be lower than your marginal tax rate.
When you turn 60, you won’t pay any tax on your pension income. Even if you are under age 60 you will get a tax rebate on your pension income.
Ease into retirement
If you want to reduce your work hours as a way of easing into retirement. Taking a TTR pension from your super fund can supplement your employment income if it’s not quite enough to maintain your current lifestyle.
What to consider
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. Here are some things you should think about:
1. Decide on your income needs – 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, or reduce work hours, without having to replace the lost income.
2. Check the tax implications – This depends on many factors, so find out the tax implications for your situation from your financial adviser.
Super SA Members
South Australian State government employees with their super with Super SA benefit from not having annual contribution caps so are able to salary sacrifice much more than the average wage earner. Super SA will generally not notify you know if you are eligible for this so you should seek advice either from them or from an external adviser.