• TFC Financial

Transition to Retirement Strategies


Thanks to changes to superannuation, Transition to Retirement (TTR) pensions have lost a little of their gloss with earnings on the investments that support the pension being taxed at 15%. This applies from 1 July 2017 to both new and existing pensions.

However, that’s about the extent of the bad news. For those over 60, the pension payments remain tax-free and TTR strategies can continue to provide a number of benefits for people nearing retirement. Let’s look at some options available to 62-year-old accountant, Brian. He works full time and is on an annual salary of $100,000.

EASING INTO RETIREMENT

First up, Brian might consider reducing his hours as he prepares for retirement. Dropping from five to three days a week will see his $100,000 annual salary reduce by $40,000 to $60,000. But as his tax bill also falls, from $26,632 to $12,147, his net income only drops by $25,515. Subject to minimum and maximum pension payment rules, and as the pension payments are exempt from tax, Brian only needs to start a TTR pension paying $25,515 each year to maintain his current lifestyle.

ONE THING TO BE AWARE OF:

Based on Brian’s reduced hours his employer’s super contributions will decrease by $3,230 after contributions tax of 15% is taken into account. Most simply, Brian could add this amount to his pension payments, and make a non-concessional contribution to his super.


BRIDGING THE GAP

TTR pensions can also help bridge the gap if household income takes a hit. What if Brian has no plans to reduce his hours, but illness prevents his partner from working for several months? He could start a TTR to tide them over and help meet mortgage repayments or medical expenses.

However, once the crisis has passed the TTR pension will need to continue, as it can’t be withdrawn as a lump sum. Alternatively, it can either be converted to a regular account based pension when Brian either turns 65 or permanently retires, or rolled back into the accumulation phase.

BOOSTING SUPER SAVINGS BY REDUCING TAX

With his partner restored to health and back at work, and Brian still working full time, what can he do with the now surplus income from the TTR pension? One strategy is to make salary sacrifice contributions to super.

Brian is able to salary sacrifice up to $15,500 of his pre-tax income to superannuation (the difference between the concessional cap of $25,000 less compulsory employer contributions of $9,500). Taken as salary, $5,932 of that $15,500 would go in tax. Make a concessional contribution to super and the tax could be reduced to just $2,325, a difference of $3,607!

If there’s still money to spare after the salary sacrifice contribution is made Brian can look at making non-concessional contributions to superannuation where earnings will only be taxed at 15%, significantly less than his marginal tax rate.

GETTING IT RIGHT

The tax benefits of TTR pensions may have been reduced, but all the other benefits remain in place. If you’re approaching retirement, it’s worth checking out what a TTR strategy may be able to achieve for you. It’s a complex area, so make sure you talk to your licensed Financial Adviser before you act.

Get in touch with us today!

#TTR #TransitiontoRetirement #Super #SuperContributions

Toowoomba Financial Centre Pty Ltd ABN 88073088070, trading as TFC Financial is a corporate authorised representative of Charter Financial Planning Limited ABN 35 002 976 294 Australian Financial Services Licensee License number 234665. This article contains general advice only. You need to consider with your financial planner, your investment objectives, financial situation and your particular needs prior to making any strategy or product decision.

CONTACT US

Phone:  (07) 4639 1399

Fax:       (07) 4639 6921 

Office:   Canberra Place 123 Margaret Street

              Toowoomba QLD 4350

              (Cnr Margaret & Hume Sts)

Postal:   PO Box 1591, Toowoomba QLD  4350

SIGN UP FOR FINANCIAL UPDATES FROM US

December 4, 2018

Please reload

Toowoomba Financial Centre Pty Ltd ABN 88 073 088 070, trading as TFC Financial is a corporate authorised representative of Australian Financial Services Licensee 234665, Charter Financial Planning Limited ABN 35 002 976  This website contains general advice only. You need to consider with your financial planner, your investment objectives, financial situation and your particular needs prior to making any strategy or products decision.

Your privacy is important to us and Australian Financial Services Licensee, which is part of AMP. You may request access to your personal information at any time by calling us on (07) 4639 1399 or contacting AMP on 1300 157 173.

Information collected will be subject to AMP's Privacy Policy. You can also contact us or AMP if you do not wish to receive information about products, services or offers available from us or AMP from time to time.