A TTR (Transition to Retirement) is a method for topping up your income as you approach retirement. It helps you supplement your work income with a super pension, enabling you to work less or part-time.
It is good to see if the strategy is worth it, based on your numbers – so talk to your accountant or advisor who is licensed to advise on SMSF. If yours isn’t licensed, ours are – so call for a chat!
We looked at its viability with the new changes coming 2017 in January.
TTR, or also called transition to retirement income stream (TRIS) or income pension (TRIP) is a gradual move to retirement – a way to enable those aged over 55 to reduce working hours without reducing income. You can do this by topping up your full or part-time income with a regular ‘income stream’ from your super savings. There are many reasons people why people continue to work after 55 (minimum preservation age) or 65 (when you are eligible for the Government Age Pension (within certain asset and income tests)), such as the mental stimulation, social interaction or feeling of value to society.
The Australian Government has made it possible for you to keep working while drawing down some of your super benefits. The policy, called transition to retirement, allows you to supplement your salary and maintain a comfortable lifestyle if you want to reduce work hours. You can also use TTR to save tax and boost your super before you retire, if you continue full-time work (in some cases). Once you hit preservation age (55 for many people, a designated age when you can withdraw super depending on date of birth), you can draw down a pension from your super even if you are still working. The government site Money Smart has a calculator to tell you what your preservation age is and also when you are eligible to receive the Age Pension. Until July 2017, the income stream assets earning a return will be tax free in the super fund, while concessional contributions into the fund (before tax employer contributions) will still pay 15%. The income stream coming out is taxable in the hands of the receiver at their marginal rate, but when over 60 the TRIS becomes a normal Income Stream (or Account Based pension) and is tax free in your hands. Once you reach age 60 you may no-longer need a TRIS, if you formally retire (condition of release) and you will receive the super income stream tax free.
The main conditions for Transition to Retirement are –
- Must reach preservation age.
- No Lump-sum withdrawal is allowed while in TRIS.
- You must withdraw a minimum depending on age, and only up to a maximum of 10%.
- You cannot withdraw any lump sums in TRIS.
- Not all super funds allow TRIS, but many Self-Managed Super funds do, as long as the Trust Deed allows it.
Chance to Boost Super up to the contribution limits.
Pay less tax if salary sacrificing.
Ease into retirement – for personal or financial reasons.
Example from Money Smart wesbite –
Andy is 55 and this is his preservation age. He earns $100,000 and wants to keep working, and has $220,000 in super. He speaks to an advisor to calculate the benefit of TRIS. He converts most of his super to a TRIS, leaving a small amount in accumulation that his employer can continue to contribute to (or he can start a new accumulation account). The employer is contributing the 9.25% – $9,250 up to June 2014, (9.5% from 1 July 2014). He salary sacrifices $15,750 and draws an income stream of $12,660. Since the tax on earnings will be zero while in TRIS, he will save over $2000 in tax yearly. See HERE.
The potential benefits of a TRIS strategy depend on –
- Marginal tax rate
- Salary Sacrifice amount
It is important to seek advice and have the calculations prepared to see if the strategy will benefit you – why not call so we can arrange an advisor to sit and discuss you needs?
If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and see how our Super-Connector Service assists you to find the right expert to answer your question – it’s FREE also!
No obligation. 0407 361 596, Paul.