Transition to Retirement

Transition-to-Retirement strategy

Transition to Retirement (TTR) is a retirement planning strategy for those over 55 and still in paid work.  With TTR you can access your super, and increase your super contributions, before you retire. TTR usually has substantial tax benefits, and can increase your wealth at retirement. However it does not work for all situations.

A Transition to Retirement strategy can give you an income stream with a 15% tax rebate. You can reduce your take-home employer income and increase your super through more salary sacrifice, while paying a lower tax rate, because you’re not taking your full salary as income.

TTR risks in a retirement planning portfolio.

Often the financial planning industry focuses solely on tax minimisation, but there are traps with TTR that may destroy wealth.  You could end up with lower wealth than when not TTR, yes have saved on tax but also reduced wealth. Each person's situation should be carefully modelled.

Our approach to TTR in retirement planning

There are limits to what you can put into your super and what you can pull out, and these have to match. The 4 variables to consider are:

  • how much you already have in super
  • how much you're putting in before TTR (employer + salary sacrifice)
  • your taxable income
  • your age.

At Archimedes Financial Planning we look at your situation in detail and work out if TTR is appropriate for you. If it is, what is the best combination of drawing on super and contributing to super, given your income and age.  The approach is personalised to your situation and assesses the four variables above to find the best combination.

Here's a brief case study of a general TTR plan:

A person aged 55

  • $110,000 pa Total Cost Package including $9,314 super
  • $73,470 pa required for living expenses & mortgage payments
  • has $300,000 in super and currently does not have surplus income to salary sacrifice to super
  • accumulation super earns 6.5% pa; pension super 7% pa.

With a Transition-to-Retirement plan:

  • makes $20,700 pa salary sacrifice, reducing taxable income to  $80,000 pa
  • starts TTR allocated pension paying $16,600 pa
  • receives $73,470 pa net income (same as not TTR).

The Transition-to-Retirement strategy is projected to increase the person’s wealth by about $13,000 at age 60 and $46,000 at age 65 (these values do not include any extra costs in runnign two accounts).

At first glance it may seem obvious to start the Transition-to-Retirement strategy.  However, observe that the walth creation before age 60 is minimal compared with that after age 60 (when pension income is not subject to incometax).

At Archimedes Financial Planning, we explore these decisions in more depth, considering:

  • what is the likley benefit if you stop work well before age 65?
  • should a TTR allocated pension draw the minimum, maximum or some intermediate amount?
  • what is the projected difference using different risk profiles?
  • how does a TTR allocated pension affect superannuation preservation status?
  • what is the effect of waiting to age 60 when pension payments are tax-free?

Analysing these questions can throw a different light on the merits of starting a TTR pension.

Contact us today to explore the merits or otherwise of a TTR strategy as part of your overall financial plan. There's no obligation or cost for the first meeting.

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