The more you ease into retirement, the more you may think about retirement planning.
You may consider going through it gradually with part-time work or using your last few years in the workforce to boost your super fund balance. Transition to Retirement (TTR) is one strategy on how you can do this.
Here’s what TTR is and how it works in Australia.
What is Transition to Retirement?
Transition to Retirement is a government enterprise that allows you to access your super while working. You can lay back a little at work and begin to access the benefits of your super take-home pay in the time leading up to retirement with the Transition to Retirement (TTR) strategy.
You could access your super as you’re still working using a Transition to Retirement strategy, but only when you’ve reached ‘super preservation age’.
When can I transition to retirement?
Between 55 and 60, depending on your birth date, you can reduce your working hours but continue to increase your TTR income by accessing a limited super fund without retiring. Here’s information on preservation age.
Date of birth
- Before July 1960
- 1 July 1960 – 30 June 1961
- 1 July 1961 – 30 June 1962
- 1 July 1962 – 30 June 1963
- 1 July 1963 – 30 June 1964
- After 30 June 1964
Do you pay tax on Transition to Retirement?
If you are 60 years old or above, TTR is tax-free. However, if you’re between 55 and 60, your taxable payment percentage is taxed at your marginal tax rate, though you receive 15% tax counteract. Investment income is taxed at 15%.
What is the difference between an account-based pension and a TTR pension?
An account-based pension, also known as allocated pensions, is designed for individuals who’ve retired from the labour force, yet it can remain a possibility in some situations for those who want to keep working. It’s a regular income stream you can use once you reach the age of preservation, which works by rolling over your super balance in your “accumulation” account into a new account.
A Transition to Retirement pension (TTR pension) is for persons who are still working and have not yet retired. It automatically becomes an account-based when you meet a super condition of release (retiring or reaching 65 years old). When your TTR pension becomes account-based, take into account that you’ll be entitled to tax-free investment earnings and no upper limit to withdrawals.
How does Transition to Retirement work?
You can use Transition to Retirement (TTR) strategy to save tax in the lead up to retirement by working full-time and increase concessional super contributions and grow your super. At the same time, you can use it to reduce your work hours and supplement your income.
To use the Transition to Retirement guidelines, you may need to set up a ‘non-commutable’ TTR income stream—one that can’t be converted into a lump take-home pay but instead pays steady income. You can use some, if not all, of your existing super account to begin TTR and must withdraw between 4 and 10% of your TTR account balance each financial year.
Your employer still pays a super guarantee and any other relevant contribution (such as salary sacrifice amounts) into your regular super account, so you can continue to grow your income super savings as long as you keep working. Of course, there’s the risk that your overall super account balance falls if you grow your super contributions, but it’s less than your TTR income stream.
Is Transition to Retirement a good idea?
It is a good idea. Here are some benefits of a Transition to Retirement to help you decide:
- TTR pension payments’ taxable component attracts a 15% tax offset between 55 and 60, and all payments are tax-free at age 60 or over.
- You may keep your current lifestyle while reducing your working hours as well.
- You keep flexibility by continuing to have a wide variety of investment options and the ability to stop at any time.
Sure, easing into life after work can be thrilling, but there’s a lot to consider, and it’s better if you get advice. There are some cons to TTR strategy, as with everything in life. It’s always better to seek a professional’s advice, especially regarding your financial situation or needs.
When considering TTR strategies to help have a steady income as you start to retire, it’s a good idea to go to an expert when looking for advice and objectives. Financial situation advice from a capable adviser is recommended. Go online to get financial advice, or you can always contact some financial services.
For more topics about retirement, you can browse through Aged Care Weekly and get updated information.