Have you heard of the transition to retirement strategy or income stream? Many pre-retirees have and many are unsure just what it means.
For Australians looking to reduce their working hours slowly and ease into retirement, the transition to retirement strategy is perfect. Basically, it provides a way to continue working while drawing down some of your superannuation benefits.
The Federal Government introduced the policy to allow Aussies to supplement their salary and maintain a comfortable lifestyle while saving tax and boosting super before full retirement away from the workforce.
Previous to the transition to retirement strategy, a person could only access super funds once they turned 65 or retired. Under the rules, a person must be over the age of 55 and less than 65 to access the strategy.
The other important detail to consider is that the super benefits are considered a ‘non-commutable’ income stream. This means that it cannot be converted into a lump sum payment but must be taken as regular payments.
The buzz behind the transition to retirement strategy is the benefits of being able to boost your super savings while easing into retirement and paying less tax.
“Your investments in your super fund are free of capital gains tax and earnings tax while you are drawing your super, so a TRIS (transition to retirement income stream) has some added benefits over and beyond saving you income tax,” Henderson Maxwell CEO and Senior Financial Adviser Sam Henderson said.
“Effectively, you have two super accounts with your provider: one transition-to-retirement pension that holds most of your investments and one accumulation account that you will be salary sacrificing into.
“Salary sacrificing for self-employed people simple means that you can add lump-sum concessional contributions before the end of June and claim a tax deduction.
“If you are employed, you have to add to your super gradually and you can’t make a lump-sum concessional contribution (which will be taxed at 15 per cent in your super fund; you can, however, make lump sum non-concessional contributions, which are not taxed in your super fund).”
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice.
For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.