Are you aged between 55 and 65? Want to save tax and supercharge your super? Or cut your work hours without reducing your income? A TTR strategy could be the answer.
After working hard over the last few decades, you might be starting to dream about all the things you would love to do when you retire – travel, buy that house at the beach, play more golf, or spend time with the grandchildren. At first blush that sounds like bliss but you know in your heart that you would be bored silly after the first six months. Is there a way to ease into retirement and have the best of both worlds? Yes, there is! You can transition into retirement.
What is a Transition to Retirement (TTR) strategy?
If you have reached your Preservation Age, a TTR Pension can enable you to access some of your super benefits whilst you continue to work.
What is your Preservation Age?
| Date of Birth | Preservation Age |
| Before July 1960 | 55 |
| 1 July 1960 – 30 June 1961 | 56 |
| 1 July 1961 – 30 June 1962 | 57 |
| 1 July 1962 – 30 June 1963 | 58 |
| 1 July 1963 – 30 June 1964 | 59 |
| After 30 June 1964 | 60 |
A TTR strategy can be very beneficial as it can help you ease into retirement and provide you with significant tax savings.
What’s the difference between super and a pension?
The main difference between a super account and a pension account is the tax rates applicable to the withdrawal options and investment earnings.
Withdrawals
You cannot withdraw lump sums from your super account until you have reached Preservation Age and have fully retired (or have met another condition of release). You can; however, access some of your super as a pension without the need to fully retire.
Before withdrawing from your pension fund, your financial adviser will need to determine the tax-free and taxable components of your super balance. The split between these components will determine the tax payable on your pension payments.
Any withdrawals from the tax-free component of your pension are not taxed.
If you have reached your Preservation Age but are still under age 60, you will need to pay tax on the taxable component of your pension payments. This will be added to your assessable income and taxed at your marginal tax rate. However, you will receive a 15% tax offset for the tax paid on this component.
Once you have reached age 60, all pension payments are received tax free.
Tax on investment earnings
Investment earnings on funds held within the super environment are subject to a 15% concessional tax environment whereas investment earnings on funds held within pension phase are completely tax free.
How does a TTR work?
There are two ways to use a TTR strategy – with a lifestyle focus or a tax-saving focus.
Lifestyle Focus: A TTR strategy can enable you to reduce your work hours and still maintain the same level of income. Effectively, you draw down an income stream from your super benefits in order to top up the shortfall in your income.
Tax-Saving Focus: On the other hand, you can also use a TTR strategy while you continue to work full time to help minimise your tax and maximise your retirement savings – and maintain the same level of income. Using this strategy you commence drawing an income stream from your super benefits and make Salary Sacrifice (before-tax) contributions to super in order to boost your retirement savings.
Things to consider
There are restrictions in relation to how much you can draw from your TTR Pension. The minimum pension requirement for a TTR Pension is 4% pa and the maximum drawdown is 10% pa of your account balance.
If your super benefits are held within a Self-Managed Super Fund (SMSF), you will need to ensure your funds’ Trust Deed allows for this type of pension to be paid. The assets and liabilities of the fund will then need to be valued to determine the value that will support each member’s pension.
If you have reached your Preservation Age and wish to consider a TTR Strategy, contact us, your independent financial planner, for individual guidance and advice.