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transition to retirement strategy
a tax effective way to ease into your retirement
Not quite ready to take the plunge into full-time retirement? A transition to retirement strategy may be a way for you to work less hours, boost your super, and get the same take home pay!
This strategy generally works best if you:
- are aged 55 or over;
- are still working full-time; and
- have some existing super.
transition to retirement explained
Transition to retirement is a strategy that can help you reduce your working hours while maintaining the same level of income. This is achieved by drawing a pension from superannuation using the ‘transition to retirement’ condition of release.
There are two main parts to a transition to retirement strategy:
1. directing a portion of your salary into superannuation, known as salary sacrifice.
2. replacing the income you direct into superannuation with a regular payment from your super savings, otherwise known as a ‘pension’.
A transition to retirement strategy changes the way you receive your income. Instead of receiving your income from one source (your employer), you receive income from two sources (your employer and your superannuation savings).
why it can be tax effective
Your superannuation pension is taxed at more favourable rates than your salary. So, to replace your salary with a pension, you can draw a smaller amount from super and receive the same amount in your pocket. This means that your superannuation savings should still grow each year.
pulling it all together
A transition to retirement strategy can be an effective way to boost your superannuation savings. But how much your savings grow will depend on the contributions you make into super through salary sacrifice compared with the amount you withdraw as your pension.
If you take out more money than you put back in, your savings will decline in value. This will result in you having less money to fund your retirement when you stop working altogether.
An ipac adviser can help you strike the right balance and determine whether a transition to retirement strategy is the best way for you to maintain your income and lifestyle as you move towards retirement.