FS360 Podcast - Episode 44

If you’re not quite at retirement age but are thinking of that next phase of your life, a transition to retirement (TTR) plan at Mulcahy & Co could be a way to set yourself up for the future.

Mulcahy & Co financial planner Tamara Vawdrey says her team generally look to implement TTR plans at age 60, however it could be done at the preservation age of 57.

“It’s an income stream (for) a person that has reached their preservation age, which is 57 now, they get limited access to their superannuation while they’re still working,” she said on episode 44 of the FS360 podcast. ”You can start a TTR income stream by transferring some, most of the time the majority of your super balance, into an income stream pension.

”You still need to retain a balance in your accumulation account because … you’re still getting your employer contributions going in there. ”You can withdraw between 2-10% of your pension balance each year.”

Vawdrey touched on the numerous benefits of a TTR plan, including being able to work less while still earning the same income thanks to your super fund topping up your active income. TTR plans could help pay outstanding debts you have before retirement, such as a home loan.

People 57 years of age and older are able to withdraw up to 10% of their pension account per year, meaning if you have, for example, a $100,000 home loan outstanding that you want to pay off before retirement and $200,000 in your pension fund, you could take out $20,000 per year to pay off your home loan.

Between the ages of 57-59, any money taken from your super fund becomes part of your taxable income, however this isn’t the case once you turn 60. Vawdrey explained the tax benefits to implementing a TTR plan. If, for example, you take out $20,000 and use those funds to make a re-contribution to your super fund, this is called a re-contribution strategy. You would earn a tax deduction on that lump sum, paying at the super tax rate, 15%, instead of the marginal tax rate.

There is a contribution cap, however, which is $27,500, which does include your employer contributions.

Salary sacrificing is another tax benefit, where you could use your pre-tax income and put it into your super fund, to save paying tax on that amount. For example, if you salary sacrifice $10,000, that comes off your income, prior to charging tax on it. So, if you earn $100,000 per year and salary sacrifice $10,000, you’ll only pay tax at $90,000.

In good news for employees, employers’ mandatory superannuation contribution are increasing. This figure is set to rise 0.5% each year until it hits 12%.

For more information on this topic please contact one of our professionals.