There are many reasons why people continue to work past age 55. Some need the money. Others enjoy the mental stimulation and social interaction that a job offers. Some will reduce their working hours as a way to slowly ease into retirement.
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. You can also use the policy to save tax and boost your super before you retire.
There are two ways to use a ‘transition to retirement’ (TRIS) pension:
- Keep working full-time and boost super
- Reduce work hours and soften the drop in income
Once you hit preservation age, you can draw down a pension from your super even if you are still working.
You may be able to transfer the sum of your super to a TRIS pension and withdraw between 4% and 10% of your pension account balance each financial year. You cannot withdraw money as a lump sum.
Boost your super savings
Your super balance will keep growing as your employer continues to make contributions into your super account. Salary sacrificing some of your pre-tax income into your super will further boost your super savings.
Pay less tax
Employer contributions and salary sacrificed contributions are taxed at a low rate when they go into super. This is likely to be lower than your marginal tax rate.
Investment returns on a super pension account are not taxed, and when you turn 60, you won’t pay any tax on your pension income.
If you are between your preservation age and 59 your TRIS income is eligible for a 15% tax offset
Ease into retirement
If you want to reduce your work hours as a way of easing into retirement, a transition to retirement pension can be used to supplement your employment income if your reduced income is not quite enough to maintain your current lifestyle.
Before you set up a transition to retirement pension, you need to consider if this type of income stream is right for you. Some things you’ll need to think about:
- Check your fund type
- Work out your retirement strategy
- Decide on your income needs
- Check your social security entitlements
- Check on your life insurance
Kyla Dalton – Accountant