TRANSITION TO RETIREMENT OPPORTUNITIES FOR PEOPLE AGED 55+ YEARS
What are the main opportunities?
- Increase your super balance
- Reduce your personal tax
- Maintain your cash flow
Why consider a Transition to Retirement strategy?
- You’ll boost your super savings so you’ll have more for the lifestyle you want.
- Your cash flow will not be affected
- You don’t pay any income tax on exiting from super (for those aged 60+).
- You only pay 15% tax on your sacrificed salary (up to the amount of the concessional contribution cap) compared to the current marginal tax rate of up to 46.5%.
- You can reap the rewards of the boosted super savings while maintaining your current level of income.
- Earnings on your super savings used to pay your pension are tax-free.
- Investment returns on your salary sacrificed salary invested in super will only be taxed at 15% and not the marginal income tax rate applied to investments outside super.
- You have flexibility in working full or part time and determining what income you would like to draw as well as options to change how much you salary sacrifice.
What is Transition to Retirement?
The Government’s Transition to Retirement rules make the transition from work to retirement easier by allowing people who have reached their preservation age (The preservation age is 55 for people born before 1 July 1960 and up to age 60 for people born after 30 June 1964) to access their super without having to retire permanently from the workforce. The condition is that a person accessing their super savings must use the amount accessed to begin a non-commutable income stream.
Simply put, a non-commutable income stream is a special type of income stream that allows you to receive a regular income from your super but generally doesn’t allow you to withdraw a lump sum. Typically, these types of income streams have a minimum and maximum pension payment for people aged between 55 – 64 years and allow money to be rolled back into a super fund.
A popular type of non-commutable income stream is a Non-Commutable Account-Based Pension. This Pension provides investors with flexibility around the amount of income paid, frequency of payment and investment options.
A common strategy based on the Transition to Retirement rules is starting a non-commutable income stream and then salary sacrificing part of your salary into super. By using this strategy you may be able to reduce your tax, increase your super savings and maintain your current level of income.
For further information talk to Vaughan and Monaghan Insurance & Financial Services now.