Retirement planning toolkit
3 things you should know about "transitioning"
If you're aged between 55 and 65, the transition to retirement rules allow you to access your super without having to retire completely from the workforce. It's the superannuation version of having your cake and eating it too.
Here are 3 important things you should know about transitioning:
1. What's a "transition to retirement pension"?
A transition to retirement pension enables Australians aged 55 or over to access a part of their super in the form of a pension while still working, full time or part time. You can use it to transition more easily from full-time to part-time work, or boost your super savings and minimise tax.
2. Two transition to retirement strategies to consider:
i. Cut your hours, not your income
You reduce your work hours but replace your reduced salary with income from a transition to retirement pension. Thus, you can maintain your lifestyle but cut down on work. The catch? You'll be decreasing your super savings.
ii. Supercharge your super without the sacrifice
You continue to work full time, make salary sacrifice contributions to your super and top-up your reduced salary with income from a transition to retirement pension.
Your salary sacrifice super contributions are taxed at 15% instead of your individual income tax rate (as long as all your concessional contributions fall within the current cap). Which means you can actually contribute more to super than you withdraw while keeping your income the same.
See case studies of these strategies in action.
3. The tax effect of transition to retirement strategies
In most instances, income you receive from a transition to retirement pension is favourably taxed compared to your salary:
- Tax concessions – if you're between 55 and 59, your transition to retirement pension income is eligible for a 15% tax offset.
- Tax free income – if you’re aged 60 or over, your transition to retirement pension income is tax-free.
- Tax-free investment earnings – the assets backing your transition to retirement pension generate tax-free investment earnings, which would otherwise have been taxed at up to 15%.
For more information see the ATO website.
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The transition to retirement legislation and its potential benefits can be a bit hard to understand at first attempt – if you’d like more information call us today on 1300 661 577, we’ll be happy to fill in the spaces for you.
