If you’re still working, lucky you because you get to take advantage of the TTR – the Transition to Retirement Income Scheme.
The key benefit of the TTR is you can boost your super in your last years of working while accessing some of your super at the reduced tax rate.
Warning: This isn’t something to set up without getting financial advice. So learn about TTR but get in touch with your super fund or financial adviser before acting on any information.
How does TTR work?
Once you reach preservation age (usually somewhere between 55 and 60 years of age), you can use some of your super for an account-based pension that you might be able to live off. Then you transfer all of your salary into your super account.
Of course, the government’s original intention was to allow people to reduce their working hours as they got closer to retirement but continue to work. Continued participation in the workforce means lower social security payments for the government so both sides win.
Transition to Retirement Income Scheme: Two scenarios
1. Reduce your work hours
We’ll use a fictional worker for this example. Let’s call her Julie.
Julie is 60 years old and has a super balance of just $140,000. She earns just over $53,000 a year after tax working five days a week. She would like to work only four days a week.
She transfers $120,000 of her super into an account-based pension. From this she receives $8,800 a year. With her new four-day week, Julie earns $44,700 after tax. She tops this up with the income from her account-based pension to end up with $53,500.
Note that if you access your super early to top up a reduced income, this will affect your retirement income.
2. Increase super balance
On the other hand, John wants to save more to increase his super balance of $175,000. He earns $60,000 a year and is hoping to retire at 65.
To supercharge his superannuation and reduce his income tax bill, John needs to salary-sacrifice a bigger chunk of his income to his super account.
In this fictional scenario, John salary-sacrifices $16,800 from his $60,000 income, leaving him with a taxable income of $43,200. His after-tax income is now $37,600.
John has transferred some of his super into a TTR income account. He uses this income stream to top up his take-home pay. By the time he retires, John has grown his super to $257,900 – $18,000 more than if he hadn’t taken advantage of the TTR.
Note: This scenario is complex to set up and manage so please seek financial advice from a professional adviser.
Who can help with the Transition to Retirement Income Scheme?
The easiest approach is to talk to your super fund. Most super funds offer advice, webinars and video tutorials to help you ease into retirement. If your super fund can’t help, then seek out a financial adviser or even talk to someone at your bank.
What about my government benefits under TTR?
If you start a transition to retirement income stream, it could affect any government benefits you receive currently. Speak to a Services Australia Financial Information Service (FIS) officer for more information.
Want to learn more about making the most of your next 30 years?
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