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What will your retirement look like?
January 2010
Retiring can often mean different things to different people—for example, it can mean transitioning from paid work to volunteer work, stopping work completely or just cutting down your hours so you can make the most of other aspects of your life. Whatever your dreams are for retirement, a little bit of planning for whatever your retirement may look like now could make a difference.
Why not transition into retirement?
Transitioning into retirement can be easy using a TTR (Transition to retirement) strategy. This strategy is often suitable for those who aren’t ready to completely retire from the work force.
If you have reached your preservation age (55-60 depending on your date of birth) you can use this strategy to draw down on your super as a pension while still working. You can choose to reduce your working hours and supplement your income with the pension or continue working and boost your super with additional salary sacrifice contributions. There may also be significant tax benefits to taking a TTR strategy.
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Although TTR sounds complex, it’s simple really. The case study below is an example of how an effective TTR strategy may be applied and is for illustrative purposes only.
Case study
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Steven is 58 and earns $90,000 p.a. His priority is to pay off the $180,000 remaining on his mortgage. Steven has $260,000 in his superannuation account (which includes a tax-free component of $30,000 made up of personal contributions).
Steven wants to add to his savings but also wants to repay his debt before he retires. All of his additional income to date has gone into repaying his mortgage and he has not made any salary sacrifice contributions as he has needed $60,000 p.a. to live.
Solution
A financial adviser has recommended that Steven commence a TTR pension with $240,000 of his super - drawing a maximum of 10% from his pension immediately along with salary sacrificing $24,000 from his salary p.a. to his superannuation savings.
Salary sacrifice contributions are taxed at 15% compared to Steven’s personal marginal tax rate of 37% + 1.5% Medicare levy.
Steven’s pension income also has a tax free component of 11.54% from his past personal contributions – with the remainder qualifying for a 15% tax rebate, further increasing the tax advantages of this strategy. Steven’s entire pension income will be tax free when he reaches age 60.
This TTR strategy is comfortably achieving Steven’s stated objectives.
| Current position | Transition to retirement |
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| Salary | $90,000 | Salary
Pension | $90,000 - $24,000 to super
$24,000 (11.54% tax free) |
| Income tax | -$22,600 | Income tax | -$18,349 |
| Net income | $67,400 | Net income | $71,651 |
Strategy outcomes:
- income tax saving of $4,251;
- additional income which can be directed to paying off Steven’s mortgage faster;
- investment earnings within pension fund are tax free.
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A perfect time to get advice
If you’re thinking about your retirement options, now may be the perfect time to seek professional financial advice. As a member of Plum you can access the services of financial advisers through Momentum Financial Advice.
If you would like to speak to an adviser or find out more about Momentum Financial Advice, simply call a Member Services Consultant on 1300 55 7586, Monday-Friday, 8:00am to 6:00pm, Melbourne Time.
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