You’ve worked hard throughout your life and are now starting to think about all the things you’ve dreamt of having time to do like buying that beach house, or taking that dream holiday. If you’re starting to think about life after work, then it may be time to think about reviewing your super and taking the opportunity to build up your retirement savings.
If you’ve reached the preservation age (between 55 and 60 depending on your date of birth) and have some super already accumulated, a Transition to Retirement strategy could help you boost your super savings without cutting back on your lifestyle. It could even allow you to reduce your hours at work and supplement your reduced salary with income from your super.
Transition to Retirement strategies to consider
1) Supercharge your super without changing your lifestyle
You continue to work full time, make salary sacrifice contributions to your super and top-up your reduced salary with income from a Transition to Retirement Pension.
Your salary sacrifice super contributions are taxed at 15% instead of your individual income tax rate (as long as all your concessional contributions fall within the current cap and your ‘income’ is below $300,000). In most instances your Transition to Retirement Pension is taxed more favourably than salary and wages. This means you could potentially contribute more to super than you withdraw while keeping your after tax income the same.
2) Cut your hours, not your income
You reduce your work hours but replace your reduced salary with income from a Transition to Retirement Pension. Thus, you could maintain your lifestyle and have the option of cutting down on work. The catch?
You’ll be accessing your super savings earlier than might otherwise be the case.
The tax effect of Transition to Retirement strategies
In most instances, income you receive from a Transition to Retirement Pension is favourably taxed compared to your salary:
Tax concessions – if you’re between preservation age and 59, your Transition to Retirement Pension income is eligible for a 15% tax offset
Tax-free income – if you’re aged 60 or over, your Transition to Retirement Pension income is tax-free
Tax-free investment earnings – the assets backing your Transition to Retirement Pension generate tax-free investment earnings, which would otherwise have been taxed at up to 15%.
Is a transition to retirement pension right for you?
Transition to retirement pensions can provide you with flexibility in the years leading up to your retirement and can help to boost your retirement savings in some circumstances.
People who might find transition to retirement pensions attractive include those who:
- have reduced working hours from full-time to part-time, eg down to three days per week. The reduced salary can be topped up with income from the transition to retirement pension
- are able to salary sacrifice to superannuation – the outcome of combining the transition to retirement pension with salary sacrifice can be a greater build-up of superannuation savings by the time you reach actual retirement
The transition to retirement rules and associated strategies can be very complicated. It is recommended that you contact us before deciding if this type of income stream and strategy is right for you.
For more information call us at Verante Financial Planning on (02) 9894 1844.
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