Thinking about easing into retirement, but not quite ready to hang up your boots completely? Transition to Retirement (TTR) might be just the ticket! It’s a flexible strategy that allows you to access some of your superannuation while you’re still working, potentially boosting your retirement savings and reducing your tax burden.

What exactly is a Transition to Retirement (TTR) pension?

A TTR pension is a special type of income stream that you can access from your superannuation fund once you reach your preservation age. The beauty of a TTR pension is that you can continue working, even full-time, while drawing down a regular income from your super.

How does it work?

1. Preservation Age: First things first, you need to have reached your preservation age.

2. Accumulation Fund: You need to have an accumulation superannuation fund.

3. TTR Pension: A portion of your super is transferred into a separate account within your super fund, where it’s treated as a pension.

4. Income Stream: You can then choose to receive regular payments (income stream) from this TTR pension account. This income stream can be used to supplement your salary or replace a portion of it if you decide to reduce your working hours.

5. Tax Benefits: The income you receive from your TTR pension is tax-free if you’re over 60.

How can a TTR pension help build your retirement nest egg?

Here’s where the magic happens. While you’re receiving a tax-effective income stream from your TTR pension, you can continue to work and contribute to your superannuation. Here’s how it can help build your nest egg:

• Salary Sacrifice: You can salary sacrifice a portion of your pre-tax income into your superannuation fund. This reduces your taxable income, meaning you pay less tax, and the money goes straight into your super.
• Lower Tax on Contributions: The money you contribute to your super is taxed at a maximum rate of 15%. For many people, this is much lower than their marginal tax rate, meaning you keep more of your hard-earned money in your super.
• Compounding Growth: With more money in your super, you benefit from the power of compounding growth. This means your investments have the potential to earn returns, and those returns can then earn returns themselves, leading to exponential growth over time.

Example:

Let’s say you’re 60 and decide to reduce your working hours. You start a TTR pension and withdraw $20,000 per year from your super. You then salary sacrifice $20,000 of your pre-tax income back into your super.

• Reduced Tax: You’ll pay less income tax because your taxable income is lower.
• Increased Super Contributions: Your superannuation balance continues to grow, even though you’re accessing some of it as income.
• Tax-free Income in Retirement: When you fully retire, you’ll have a larger super balance to draw on, tax-free (if you’re over 60).

Who is a TTR pension right for?

• Approaching Retirement: Individuals who are within a few years of their retirement and are considering reducing their working hours.
• Wanting to Boost Super: Those who want to increase their superannuation contributions before retirement.
• Seeking Tax Benefits: People looking for tax-effective strategies to manage their income.

Pros of a TTR pension:

• Flexibility: You can control how much you withdraw from your super. You must take at least 4% and no more than 10% of the balance in your pension account.
• Tax Effectiveness: Enjoy a tax-free or concessional income stream.
• Boost Super: Continue to grow your superannuation balance while accessing it.
• Ease into Retirement: Gradually reduce your working hours while maintaining your lifestyle.

Cons of a TTR pension:

• Complex: Setting up and managing a TTR pension can be complex.
• Investment Risk: Your superannuation investments are still subject to market fluctuations.
• Impact on Insurance: It’s important to check how a TTR pension might affect any insurance held within your super fund.
• Fees: There may be fees associated with setting up and maintaining a TTR pension.

Important Considerations:

• Financial Advice: It’s crucial to seek professional financial advice before starting a TTR pension to ensure it aligns with your individual circumstances and retirement goals.
• Superannuation Rules: Superannuation rules and regulations can be complex and are subject to change. It’s essential to stay informed.
• Investment Strategy: Consider your investment strategy within your superannuation fund and how a TTR pension might affect it.

Transition to Retirement: A Powerful Tool for Your Financial Future

A TTR pension can be a powerful tool for boosting your retirement savings and managing your income as you approach retirement. However, it’s important to carefully consider your options and seek professional advice to ensure it’s the right strategy for you.

This blog post is intended for general information purposes only and does not constitute financial advice. It is essential to seek personalised advice from a qualified financial advisor to ensure the information is appropriate to your individual circumstances.