How to Transition to Retirement with Ease

Making the decision to retire is a significant one, and it becomes considerably more challenging if you are worried about your retirement income.

The 4.2 million pensioners in Australia are 56.9 years old on average; however, many people leave their jobs a little later to complete their education, with the majority planning to retire at a little over 65.

A “transition to retirement” (TTR) plan could be effective for you if you’re not quite ready to retire. It enables you to transition smoothly into retirement by:

• increasing your income in the event that you cut back on your working hours, or
• increasing your superannuation fund and reducing taxes while continuing to work full-time

Anyone 60 years of age or older who is still employed can use the approach to access their super without having to totally retire.

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Less Work for the Same Pay

A portion of your super balance is transferred into a particular super fund account that generates income as part of the strategy. You can take out up to 10% of your amount annually from this account.

This strategy enables you to continue earning money while making concessional (before-tax) contributions to your super as you move toward complete retirement, all the while building your super balance—so long as the contributions continue.

It should be noted that, in most cases, you must get your super benefits as regular installments rather than as a lump sum cash payout while you are still employed. However, there are a few exceptions for exceptional situations.

For example: Alisha who recently turned 60, makes $50,000 annually before taxes. She chooses to work only three days a week in order to gradually transition into retirement.

Her income will therefore decrease to $30,000. Alisha takes out $9,000 year, tax-free, from her super, which she transferred $155,000 of to a transition to retirement pension. This partially makes up for the money she lost.

Under a TTR approach, income from your super fund is tax-free, but keep in mind that it might have an impact on any government benefits you or your partner receive.

Additionally, see if your super fund has any life insurance coverage in case a TTR strategy lowers or terminates it.

 

Boost Your Super

A TTR strategy can be utilised to boost your super or increase your income if you want to continue working full-time after the age of 60.

Increasing your salary sacrifice contributions into your super fund and replacing the money you lose from salary sacrificing with a TTR income stream from your super fund could work.

For instance, Kyle, who is 60 years old, makes $100,000 annually. At least another five years is how long he plans to continue working full-time. In order to begin a TTR plan, Kyle moves $200,000 from his super to an account-based pension. He subsequently makes salary sacrifices back into his super.

In addition to lowering his take-home salary, this will also lower his income tax. In order to supplement his income, he takes out up to 10% of his TTR pension sum annually.

Those with a higher marginal income tax rate and a larger super balance and those who have not yet hit the concessional contribution maximum are more likely to benefit from a TTR plan.

Although the advantages might not be as large, people with lower super amounts and incomes can still benefit from it.

 

A Few Things to Consider

TTR is not for everyone. For example, remember that you are only allowed to take out 10% of your super amount annually.

Additionally, you will have less money in retirement if you begin taking early withdrawals from your super.

The regulations governing a TTR approach can be complex, especially if your work status changes or you have other intricate financial commitments and assets. Therefore, it’s crucial to get expert assistance to ensure that it suits you and that you are taking full use of its advantages.

Give us a call to talk about your choices for retirement income.