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Welcome back everyone. In the sixth and final part of my blog series, I want to discuss something that affects all of our financial journeys: Superannuation. Perhaps you’re concerned about your retirement savings? Or maybe uncertain about how to make the most .....
For many people, a gradual transition from full-time employment to full-time retirement is more desirable than a sudden and complete change. Fortunately, the Australian government has recognised this and developed a program that offers just that.
Transition to Retirement (TTR) can be used in two ways. You can keep working full-time in order to give your super account a last-minute boost, or you can reduce your working hours but still maintain your current income.
Let’s take a look at some important things to consider before setting up a TTR pension.
The Transition to Retirement Pension is only available to people who have reached the preservation age (between 55 and 60, depending on your birthdate). Keep this important fact in mind as you talk with your financial adviser about taking advantage of TTR.
One of the most attractive reasons to use a TTR pension is that you can improve your overall tax payable. Employer contributions and salary sacrificed contributions are both taxed at low rates when they’re transferred to your super account. For most people, this rate is lower than the marginal tax rate.
Additionally, you won’t have to pay tax on your pension income after you turn 60. And if you’re between the ages of 55 and 60, you’ll receive a tax rebate on your pension income. You should be aware however, that the superannuation changes will tax the income on a TTR pension at the same rate as if it was in accumulation phase. Previously, this income was taxed at 0.
Some people find as they near retirement that their super savings aren’t quite as extensive as they’d hoped. TTR allows you to do something about that. By salary sacrificing some of your pre-tax income, you can boost your super savings in the last few years before retirement. The great thing about this is that most people are at their peak earning capacity during these years, so there’s plenty of potential for making up for lost time.
As you’re considering whether or not to set up a Transition to Retirement Pension, check your fund type. TTR pensions are only available for people who are members of accumulation super funds. If you have a defined benefit fund, you’re not eligible for a TTR pension.
If your life insurance is a benefit of your super fund, you’ll need to talk with your Wealth Management Adviser to find out how TTR would affect your insurance policy. It’s possible that the switch to TTR could terminate your life insurance.
Some people discover that there are conflicts between their Transition to Retirement Pension and their social security entitlements. If you or your partner are currently receiving entitlements, speak to a FIS officer at the Department of Human Services or your financial adviser to find out if this is a concern for you.
As you can see, there are many attractive benefits of Transition to Retirement Pensions. But is TTR right for you and your plans?
Your life is unique, and your plans for retirement should perfectly suit your plans, your aspirations, and your personal situation. Get your retirement goals on track with our 32-page Retirement Planning Guide. It will help you to sort through many different issues, such as how much you need for a comfortable retirement, the benefits of super, and strategies for preparing for retirement.
Set your business on the right path with this simple guide.
Make sure you’re on the right track with this online checklist.
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