When considering a transition to retirement strategy, the focus is usually on whether or not you can afford to, however, perhaps you should ask yourself if you can afford not to.
With robust planning, using the correct tools and resources available, transition into retirement can potentially improve your future lifestyle. As well as giving you a greater balance in life – it could mean less work and more play – it can also help you save at a faster rate.
Once you have reached your preservation age, transition to retirement (TTR) strategy enables you to access a portion of your super to open a retirement income account. This works alongside your super account to help reduce the overall tax you pay while helping grow your super savings.
The retirement income account provides you with regular payments, giving you the flexibility to either reduce your hours at work, or if your employer allows salary sacrifice, you could contribute some of your pre-tax income to your super and use payments from your income account to top up your salary. Either way, your take-home pay will be the same, so you don’t notice any difference to your lifestyle. There are annual limits as to the minimum and maximum you can draw down from your income account, which depend on your age.
It’s important to remember for TTR to be effective as an accelerated super saving strategy; the tax you pay on your salary sacrifice super contributions should be less than the tax you pay on your salary (your marginal tax rate).
When you can begin transition to retirement depends on your preservation age. This can be anywhere between 55 and 60 years of age depending on the year you were born. But you can start planning your transition to retirement at any age.
The benefits of TTR aren’t just financial. Depending on your circumstances, you may be able to work fewer hours and give yourself a feel for what it’s like to have more time on your hands. It’s also a good opportunity to make a career switch, volunteer or drop to more sustainable hours over your remaining years at work. And, if you’ve dreamed of a tree change or sea change, this is as good a time as any to give it a go.
To ensure you get the right strategy in place and to find out if TTR will work for you, you should seek professional financial advice. If you would like to learn more about the benefits of transition to retirement, visit AustralianSuper and find out how you can take advantage of your super and plan for the future.
This article has been sponsored by AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, the Trustee of AustralianSuper ABN 65 714 394 898. The views expressed are those of YourLifeChoices and not necessarily the views of AustralianSuper. The article contains general information and you should consider your personal financial situation before making a decision.