The Transition to Retirement (TTR) strategy offered by the Australian Taxation Office enables Australians to access their retirement funds while still employed. It is particularly well suited to people nearing retirement and wanting to reduce their working hours while maintaining financial security. In most cases, the only qualifying requirements for a TTR are that you must be of preservation age, still employed, and have a qualified super fund.
To establish a TTR, you’ll need to create a TTR account (which is often an Account-Based Pension) in addition to your superannuation account. You will transfer a portion of your retirement funds into this account; a minimum of $25,000 is needed.
You will get monthly pension payments, and there is a minimum amount of money that you must receive from the pension. That is now 2% of your balance, but it will increase to 4% on July 1, 2022, when the account is closed. In this case, a 10% restriction is imposed. It is important to note that you will not collect a lump payment from this pension plan.
Pros of Transitioning to Retirement
If you are above the age of 60, payments from your TTR income are not subject to tax. Individuals between 55 and 59 are subject to tax at their marginal tax rate, with a 15% tax offset.
You may also continue to build your retirement savings by making contributions to your super account, both via your employer’s super guarantee payments and through concessional (before tax) and non-concessional (after-tax) contributions. Never forget the advantages of working fewer hours: more time for yourself, your family, and your interests.
Cons of Transitioning to Retirement
Changing your working hours may need a negotiation with your employer, which may not be something you are comfortable with at this time. It may be tough to negotiate conversations regarding retirement since there may be an impression that you are no longer devoted or dependable. That is not true, but it is also a factor you must carefully consider.
If your spouse receives an Aged Pension they will be required to notify Centrelink of any changes to your assets which might impact the payments they receive. Your super balance will be reduced immediately when money is transferred from your super account to a TTR account. You’ll have less money in your super fund, which means you’ll have less money available for investment growth and income in this account. If you don’t increase your retirement savings, you’ll have less money available when you reach full retirement age. You may continue to get income from your pension account investment; but, the rate of return may not be the same as your super.
Ready to Transition to Retirement?
For individuals who are nearing retirement, a TTR method may be quite effective. However, you should also implement some strategies to reduce the risk of getting less retirement money. You must realize that the material provided here is generic and does not consider your specific circumstances. When accessing whether the material is suitable for your circumstances, you should always consult with a financial adviser who can provide you with expert assistance when necessary. In addition, it is essential to note that the Australian financial and taxation systems are constantly evolving, and the information provided above may no longer be accurate in time.
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Disclaimer: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.