You could supplement your income with a transition to retirement pension.
A TTR pension allows you access to some of your super when you’re approaching retirement. This means you can supplement your income with the super you’ve accumulated throughout your working life. A TTR pension is an account based pension in ‘pre-retirement phase’. This means that tax on earnings in your TTR will be at a maximum rate of 15%. Once you’re 65 or notify your super fund that you’ve retired or meet certain other conditions of release, your TTR will enter retirement phase where earnings are tax-free.
Mark, aged 60, works full-time, earns a salary of $80,000 p.a. (or $63,013 after tax) and has $400,000 in super. He wants to cut back to a three-day working week.
While Mark’s salary will reduce to $48,000 p.a., he doesn’t want to compromise his living standard. He invests his entire super benefit in a TTR pension and draws an income of $20,680 over the next 12 months.
By using this strategy, he’ll be able to replace his pay cut of $32,000 and continue to receive an after-tax income of $63,013 p.a. He’ll also pay $11,320 less tax. This is because the TTR income payments are tax free because he is 60, whereas his salary is fully taxable at his marginal rates.
|In year one||Before strategy||After strategy|
|TTR pension income||Nil||$20,680|
|Total pre-tax income||$80,000||$68,680|
|Less tax payable³view disclaimer||($16,987)||($5,667⁴view disclaimer)|
Disclaimer 2. The minimum withdrawal has been reduced by 50% (down to 2%) for the 2021/22 financial year, but will return to 4% from 1 July 2022 onwards.
Disclaimer3. Tax payable is based on the 2021/22 rates and thresholds.
4. Tax on $48,000 as TTR pension income is not taxable.
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