If you are gradually reaching your preservation age but see yourself working for a few more years, then you may want to consider using the transition to retirement (TTR) pension.
This pension is a great option for those who wish to cut down the number of hours they are working, but want to maintain the same level of cashflow.
A good example of this is someone who is in full-time employment, who wants to only work three days per week but maintain a full-time salary.
A TTR pension works by drawing funds from your superannuation account by using the condition of release that allows you to access your super as a non-commutable income stream once you reach your preservation age.
It is available for those who have reached preservation age (currently 55) and are still working.
Funds are transferred from the super accumulation phase into a retirement income stream, which is then used to supplement your reduced income. This means that instead of receiving income from one source (your employer), you will be receiving it from two (your employer and your super fund).
As these pensions are non-commutable, you cannot take a lump sum while you’re still working under age 65 and are limited to a maximum of ten per cent of the account balance that can be drawn each year.
“The clientele most suited for these pensions are those who are genuinely reducing their hours but don’t want to reduce their income. However, people working full-time should not overlook the benefits of a TTR pension. When coupled with a salary sacrifice arrangement, it means having more come retirement than if you don’t use the pension. And it works best for people aged 60 or more because that is when super is tax free,” said ipac financial expert Colin Lewis.
However, for people working full-time to truly benefit from a TTR pension, it’s important to be discilpined to put back into super an amount equal to your pension payments as salary sacrifice contributions – otherwise you will be reducing your retirement savings once you retire full-time.
“If you have a relatively low account balance in super, it generally wouldn’t work because fees and charges may absorb the benefit of doing it,” said Mr Lewis.
It’s beneficial to consult a financial planner if you’re thinking about commencing a TTR pension to work out how it best works for you.
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