Transition to retirement – is it for you….

It is estimated some 70,000 older Australians are transitioning to retirement by working fewer hours and switching jobs in their final years in the workforce and using their super to effectively 'top up' their income.

This strategy, while not as attractive as it once was due to change in the tax treatment of these pensions, is based around using a “transition to retirement’ or TTR pension to access super and keep working.

 This effectively creates an income supplement for those reducing work and boosting super in a tax-effective way via salary sacrifice.

 A TTR enables transitioning retirees to work less, but still receive the same amount of money – or more – and provides additional spare time to settle into a new lifestyle of playing more golf or having additional gardening time.

 If you are considering adopting a TTR strategy it is important that you speak to a good tax agent who can walk you through all the tax benefits of adopting a TTR and at the same time still contribute to super.

As a general comment, If you are 60 or older, your TTR pension payments are tax free. If you are 55 to 59, your pension is taxed at your marginal tax rate, but you get a 15 per cent  tax offset.

However, once you turn 65, you can withdraw as much money as you want from super but the drawback with this is you will have limits on putting money back into super and so loose the benefit of having assets in a tax-free environment.

 It also means if you are drawing down more than you are contributing via the super guarantee contribution or salary sacrificing, you may be diminishing the assets you have to support you through retirement.

 So, you really need to think this through before you do withdraw any funds from super.

 Nonetheless there are a number of benefits of drawing down from super as you move into super. Depending on your age and overall situation. you may be reducing the overall tax burden on your super.

 You can also use this strategy to equalise the super balances between your own and your partners super savings by drawing down a pension payment and then contributing it to your partners super.

 You can draw down funds to reduce debt or to realise some other estate planning goals or to make one off contribution to say a child wanting to build a deposit to buy a home or repay their HECS debt.

 These are all options you can consider once you start getting close to retirement. The key is to seek good advice before you make any decision.