Work’s a big part of the day-to-day routine for most of us, and for some, a core part of their identity – not everyone turns 60 and is immediately ready to retire. Australians are living longer and healthier lives, and if you really like your job, you may find it difficult to suddenly stop working.
Semi-retirement is proving a popular option if you want the best of both worlds – more free time for family, hobbies, or passion projects without having to give up the financial and social benefits of paid work.
In most cases, you can’t touch your super until you reach age 60 and retire or leave a job, but transition to retirement (TTR) is a government initiative that lets you to receive part of your super as a tax-free income while you’re still working. To be eligible, you must have turned 60 and be an Australian citizen or permanent resident, or a New Zealand citizen.
How does it work? You transfer a lump sum from your super account and use this money to set up a separate TTR income stream (by opening a non-commutable account-based pension alongside your regular super account). You’ll receive a regular, tax-free payment to your bank account from your income stream, which acts as a supplement to your wages. At the same time, you can maximise your retirement savings by continuing to add to your super through employer and/or personal contributions.
Working part time can help you boost your super savings if you’re not ready to fully retire. Under superannuation legislation, employers must pay super for all eligible staff, whether they’re full time, part time or casual.
This means that even if you’re only working a couple of days a week, your super balance can continue to grow. Supplementing your super with a part-time income means you’re drawing down less money, which means your savings can last longer and can continue to be reinvested.
Work less or save more?
Depending on your circumstances, you can use the TTR rules to:
- Ease gradually into retirement
You can gradually reduce your work hours and transition into retirement, while supplementing your income from your super.
How does this work?
Let’s look at an example. Pam just turned 60. She earns $100,000 a year and would like to reduce her working week to four days, while still maintaining the same level of income, before retiring fully at 65.
Pam’s current take-home pay is $77,212 a year, which will go down to $63,313 a year if she works four days a week instead of five. But Pam can get tax free payments from her TTR income stream to her bank account so she still has the same amount of money in her pocket each month, while continuing to grow her super as she keeps working.
- Keep working and boost your super
You work the same hours, access a pre-retirement income stream, and pay less tax by adding to your super from your before-tax salary (using salary sacrifice). You can even structure this so there’s no effect on your take-home pay.
How does this work?
Here’s another example. Jim just turned 60 and wants to get a bit more into his super before he retires at 65. He earns $100,000 a year and found he could potentially add $15,300 to his retirement savings in one year through TTR. This is possible if only $18,000 of Jim’s annual salary is paid directly to his super (salary sacrifice), because his super is taxed at a lower rate than his income.
This salary sacrificed amount would be added into Jim’s super account, along with his employer contributions, making his balance grow faster. At the same time, Jim would receive payments from his TTR income stream to cover the salary sacrificed amount and maintain his current take-home pay.
The rules and conditions around the TTR income stream can be complex, especially when it comes to tax. If you need assistance, call 1300 300 820 or visit www.visionsuper.com.au/book-an-appointment to make an appointment with a Vision Super Financial Planner** who can provide information and advice about whether transitioning to retirement is right for you.
*This information is general advice which does not take into account your personal financial objectives, situation or needs. Before making a decision about Vision Super, you should think about your financial requirements and consider the relevant Product Disclosure Statement and Target Market Determination. Issued by Vision Super Pty Ltd ABN 50 082 924 561 AFSL 225054.
**Vision Super Financial Planners are employees of the Trustee (or a related entity) that are authorised to provide financial advice as representatives of Industry Fund Services Limited (IFSL) ABN 54 007 016 195 AFSL 232 514. Any financial advice provided by a Vision Super Financial Planner is issued on behalf of IFSL, not their employer.
