Funding Your Retirement With The Transition To Retirement Pension (TTR)
The transition to retirement initiative, or TTR, has allowed many who are still working on a full time basis to either maintain their income or avoid paying tax on their performance returns by accessing a portion of their superannuation. But many wonder if this strategy is right for them.
Experts have identified more than one scenario as being ideal for the individual considering TTR funding. Those who are 55 years of age or over may benefit most from this strategy, as well as those who have an existing super and are employed part or full time.
Benefits of Using the TTR
Individuals can benefit two ways from using the TTR strategy. They can continue to work on a full time basis and continue to make super contributions, using the TTR to supplement their reduced salary. These ‘salary sacrifice’ super contributions will be taxed at 15%, and not at the individual tax rate for income. The benefits of this strategy include the ability to contribute more to your super than what is withdrawn, while simultaneously keeping the same after-tax income.
The other benefit is that although working hours may be reduced, income is not. Replacing a salary with Transition to Retirement Pension income means that your lifestyle can stay the same, and you have the option to work fewer hours. However, this also means earlier super access, something that experts caution those thinking about using the TTR to consider.
How TTR Strategies Affect Taxes
The good news is that in most cases, the income received from a TTR is taxed more favourably than income received via a salary. Those who are between 55 and 59 years of age will be eligible for a tax offset of 15%. Those who are 60 years of age and over can enjoy their TTR tax-free. Finally, any assets, which support the income received via TTR, will generate tax-free earnings.
What To Consider Before Using The TTR to Fund Retirement
Those considering using the TTR strategy should ensure that they have reached preservation age. If preservation age has not been reached, the TTR cannot be commenced. The government has set both minimum and maximum limits from which income can be drawn down, and these limits cannot be altered. Lump sum withdrawals before reaching the age of 65 are not allowed. Finally, there is the risk of paying additional tax should too much salary sacrifice be made. This would result in any strategy benefits being eliminated.
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