Planning for retirement is an important part of your finances and needs to be carefully thought through. Having a plan for the later stages of your life can reduce stress and provide you with options. One choice Australians have in their later years is deciding if they wish to use a transition to retirement strategy. Retirement planning is an essential issue that should be treated seriously and include the advice of professionals which is why having transition to retirement explained simply and thoroughly is the goal of Horizon Wealth Advisory’s blog today.
Looking for help planning for your golden years? Contact an expert retirement advisor from Horizon Wealth Advisory and start preparing for the lifestyle you deserve later in life by booking an appointment online today! For further questions, call us on 1300 351 716 or email info@horizonwa.com.au.
Transition to Retirement Explained
Transition to retirement (TTR) is the possibility for people that have reached preservation age to begin receiving an income from their super without needing to retire. Using a TTR strategy allows you to either A) increase your income if you lower your work hours or B) reinforce your super and save on tax as you continue to work. Choosing to engage in a TTR strategy is entirely up to you; there are advantages and disadvantages to each option.
Benefits of Transition to Retirement
Increase Your Super
If you choose to continue working, a part of your pre-tax salary can be deposited into your super.
Pay less in tax
Persons 60 and older who commence a TTR pension, receive their income drawdown tax-free.
Decreased Work Hours
The income created by your TTR can allow you to work part-time or on a casual basis. The increase in free time can be spent as you wish, like devoting more time to your hobbies or seeing friends and family more frequently.
Following up on a Passion
Since your income will be augmented by your TTR, you may wish to take on a job you’ve always wanted but never had time for.
Reduce Debt
Use the extra money to pay off credit card debt, a mortgage, or car loan. Removing debt from your financial responsibilities provides you with more flexibility and less stress.
Continued Contributions
Since you may still be working, your super keeps receiving contributions.
Transition to Retirement Disadvantages
Draining your Super Balance
Accessing your super before retirement means you will have fewer savings once you do retire.
Tax Complexity
Your super is made up of a taxable and a tax-free component. All TTR payments are proportionately taken from each component so if 60% of your balance is taxable and 40% is tax-free and you receive a payment of $10,000 then $6,000 will be from the taxable component and $4,000 will be tax-free.
Assets that support a TTR and create earnings are taxed at 15% but can be lowered to 10% if owned for more than a year. Additionally, persons under 60 will have their TTR income taxed at a marginal tax rate, they do receive a 15% tax offset however.
Contribution Caps
Be aware of the limits you can tax-effectively furnish your super with.
Limits on Withdrawals
You are prohibited from taking a lump sum out of your super. Using TTR as income requires you to withdraw a minimum of 4% from the balance of your super; the maximum you may withdraw is 10%. You need to carefully consider how much of your super you want to move into your TTR account when you open it.
Which is best?
Comparing the transition to retirement disadvantages with the benefits of transition to retirement to assess which decision is best for you is requires factoring in your current circumstances, financial goals, and desired lifestyle. Seeking help from a financial advisor can help you better understand all the choices accessible to you and provide assistance in making an informed selection.
Looking for Help with Your Retirement Planning?
After having transition to retirement explained, we hope you have a better understanding of the difficulties involved in planning for your retirement. Horizon Wealth Advisory wants to help you achieve your retirement goals. Get started by booking an appointment online today or call 1300 351 716. For further questions, send us an email info@horizonwa.co.au and we will be in touch shortly.