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Ease yourself into retirement

Retirement

07/04/2016

Did you know you can access an income from your superannuation before you stop working with a transition to retirement strategy?

What is a transition to retirement strategy?

A transition to retirement strategy generally involves restructuring the way you receive your income so you can reduce your working hours or increase your super savings without affecting your day to day income. You can also take advantage of certain tax rules to boost your retirement income.

How does it work?

If you are over 55 and still working, you can access an income from your super through a transition to retirement pension. There are three ways you could use this income:

  1. To subsidise a move into part-time work.
  2. To contribute more of your earned income to super (via salary sacrifice), so you can boost your super balance without reducing your take home pay.
  3. To enable you to increase your income while continuing to work the same number of hours.

There is a minimum and maximum amount you may withdraw from a transition to retirement pension each year. Until you retire or reach age 65 the maximum income you may draw in any year is 10% of the account balance at the start of the pension or financial year. If you are under 65 the minimum amount you must take for the 2015/16 financial year is 4%.

What are the benefits? 

Supplement your income

A transition to retirement pension can help you supplement your income if you want to reduce your working hours.

Boost your super savings

By continuing to work you will still receive employer contributions to your super, meaning your savings can keep growing. You can further boost your super savings if you salary sacrifice some of your earned income to super.

Save on tax

The tax you pay when you make a salary sacrifice contribution to super is generally lower than the tax you would pay on the same amount if you received it as salary or wages. This is because contributions made to super are generally taxed at 15% whereas income is taxed at your marginal rate which can be up to 45% (plus Medicare levy). By salary sacrificing some of your pay to super you will reduce your taxable income.

The income you receive from a transition to retirement pension is more favourably taxed compared to your earned income. If you are aged 60 or over, the pension income is tax free. If you are between 55 and 59, it is taxed at your marginal rate of tax but you will receive a 15% tax rebate. In addition, investment earnings on investments funding the pension are tax free whereas tax on investment earnings outside of a pension is generally higher.

Flexibility

If you do start a transition to retirement pension but no longer need the income, you can stop the pension at any time and simply go back to accumulating your super.

Things to consider

Contribution limits

There are limits as to how much an individual can contribute to super each year. For the 2015/16 financial year an individual under the age of 49 can make a before- tax contribution to super of up to $30,000, or $35,000 for those aged 49 or over on the last day of the previous financial year. Concessional contributions include Superannuation Guarantee contributions made by your employer and any voluntary salary sacrifice contributions you make. Contributions above the limit will effectively be taxed at your individual marginal tax rate, plus Medicare, plus an interest charge. You can read more about contributions limits by visiting the Grow my Super page.

Drawing down an income

How much income you draw down will depend on how much you need and what other sources you may have. As people get closer to retirement their income needs tend to reduce and they can afford to salary sacrifice into super without having to replace the lost income. The maximum income you may draw down in any year is 10% of the account balance until you reach the age of 65.

Defined Benefit members

If you are a defined benefit member the amount you may transfer from your existing account into a pension may be limited, but you may have the option to transfer out of your defined benefit plan and commence a pension with your whole balance.

Centrelink benefits

The income you receive from the pension can affect your taxation status and eligibility for Centrelink benefits. Talk to the VISSF Advice Team to understand these implications.

How can I make a transition to retirement strategy work for me?

Whether you’re new to VISSF, or would like to stay with us when you change jobs or retire, we can help you with your pension. Transition to retirement strategies can be complex so you should contact a member of our Advice Team for help with any questions you may have.

How Steve saved over $5,900 in tax and added this to his super savings

Steve, 60, is still working full-time, earning $70,000 plus his super guarantee contribution, and plans to retire when he is 65. With 5 years up his sleeve he wants to bolster his retirement savings. While he will be limited by his concessional contributions cap of $35,000 a year, he looks into taking out an account based pension so he can start a transition to retirement strategy and salary sacrifice more into his super. Steve salary sacrifices as much of his salary as possible, into his existing super account, and draws down an amount from his pension account so that he still has the same amount of money on which to live. The maximum he may draw down is 10% of his pension account. In one year Steve can save over $5,900 in tax and contribute this to his superannuation. Over the five years between age 60 and 65 Steve can boost his super by almost $30,000 while keeping the same take home pay. This strategy is tax effective because income payments from a pension account are tax free for people over 60.

The illustration above is based on the tax rates and limits applying for the year 2015/16 (Income tax includes the low-income tax offset and the Medicare levy). The superannuation guarantee is 9.5% and, for the 2015/16 financial year an individual under the age of 49 can make a before-tax contribution to super of up to $30,000, or $35,000 for those aged 49 or over on the last day of the previous financial year. Source: Russell Investments.

Tools:

Transition to retirement calculator:

Click hereOpens in new window to see how a transition to retirement strategy can work for you.

Need advice?

Discover the difference expert advice can make to your super and retirement options.

As a VISSF member, you can now access an extensive range of advice services. A qualified financial planner from our Advice Team can help you answer single questions like:

  • Do I have enough money to retire?
  • How much money do I need to retire?
  • How long will my money last?
  • Which investment option is right for me?
  • Should I salary sacrifice?
  • Should I consolidate my super? How?
  • Do I have enough insurance cover to protect myself and my family?

You can also access simple retirement planning advice from VISSF, including advice about:

  • Effective contribution strategies
  • How to work less and access your super to top up your income
  • How to convert your super into a regular income stream

And if you need more comprehensive financial advice, the VISSF Advice Team can arrange a face-to-face meeting with a financial planner. The first meeting is complimentary.

Call 1300 660 027 to take advantage of our new financial advice services for members.

Have any questions?

Call us: 1300 660 027

Website: www.vissf.com.au

Email: super@vissf.com.au

Click here to download this article as a PDF Fact SheetOpens in new window


This fact sheet is issued by the Trustee of The Victorian Independent Schools Superannuation Fund (ABN 37 024 873 660, RSE Registration number R1000436, MySuper Authorisation 37024873660599) VIS Nominees Pty Ltd (ABN 11 006 586 367 Australian Financial Services Licence number 235097. Registrable Superannuation Entity Licence number L0000321). It contains general advice only. In preparing this fact sheet, the Trustee has not taken into account your objectives, financial circumstances or needs. Before making any financial decisions, you should consider your personal circumstances and seek appropriate independent advice. The individual case study samples are for illustrative purposes only.

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