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.
We looked at its viability with the new changes that began 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 their working hours without reducing their income. You can do this by topping up your full or part-time income with a regular ‘income stream’ (pension) from your super savings.
There are many reasons why people continue to work after 55 (minimum preservation age) or 67 (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. This is called transition to retirement and allows you to supplement your salary and maintain a comfortable lifestyle if you want to reduce work hours. You can also use the policy to save tax and boost your super before you retire, if you continue full-time work. Once you hit preservation age (which is 55 for many people, a designated age when you can withdraw super depending on date of birth – watch for increases in time), 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.
The income stream assets earning a return will be taxed at 15% in the super fund if over preservation age. Concessional contributions (before tax and employer contributions) will also still pay 15% coming into the fund. The income stream is taxable in the hands of the receiver at their marginal rate (note – you get an offset of 15%, for the tax already paid), but over 60 the TRIS becomes a normal Income Stream 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 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, up to a maximum of 10% 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 – depending on the numbers and age.
- Ease into retirement – for personal or financial reasons.
Example from Money Smart –
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 $15,500 so he can maintain his take-home pay and draws an income stream/pension of $12,379. He will save $800 in tax which stays in his super.
Then, once he turns 60 the tax on earnings in the super fund will be zero while in TRIS, he will save over $3,600 in tax yearly. See table 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!
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