Five Smart Reasons to Start a Transition to Retirement (TTR) Pension
As you approach retirement, a Transition to Retirement (TTR) pension can be a valuable financial tool. It allows you to access a portion of your superannuation while you continue to work, providing both flexibility and significant tax benefits. Here are five compelling reasons to consider starting a TTR pension.
1. Boost Your Super While Reducing Tax
A TTR pension can help increase your super balance while minimising your tax obligations. Here’s how it works: by using salary sacrifice, you can contribute more of your pre-tax income into your superannuation account. At the same time, you can draw from your TTR pension to maintain your take-home pay.
Tax Benefits: Salary sacrificed contributions are usually taxed at a lower rate (15%) than your marginal tax rate. Moreover, pension payments are tax-free for individuals aged 60 or older.
Example: Consider John, who is 61 years old. He uses a TTR pension to lower his taxable income while increasing his super savings. Over a few years, this strategy significantly boosts his retirement funds.
2. Reduce Work Hours Without Reducing Income
If you’re thinking about scaling back your work hours but want to keep your income steady, a TTR pension can help bridge the financial gap. By accessing your super, you can supplement a reduced salary, allowing you to enjoy a better work-life balance.
Benefit: You can gradually ease into retirement without experiencing a sudden drop in income. This means you can enjoy more leisure time while still maintaining your financial stability.
3. Take Advantage of Tax-Free Earnings
Once you start a TTR pension, the investment earnings within your superannuation pension account become tax-free. This is a substantial advantage, as earnings on investments supporting a TTR pension are not subject to the usual tax applied to accumulation accounts.
Tip: To maximise this benefit, consider consolidating your super into a low-fee, high-performance fund before starting a TTR pension.
4. Preserve Long-Term Savings
A TTR strategy allows you to preserve your superannuation savings for the future while still meeting your current financial needs. You can draw only the minimum pension amount required (4% for those under 65 in the 2024/25 financial year), allowing most of your super balance to continue growing over time.
Benefit: This means your super fund can compound, providing more substantial savings when you fully retire, ensuring you have a comfortable retirement.
5. Enhance Financial Flexibility
A TTR pension offers you the flexibility to adapt to changing financial situations. You can use the funds to pay off debts, cover unexpected expenses, or even pursue new opportunities without dipping into your savings or investments.
Tip: Regularly review your TTR strategy with a financial adviser to ensure it aligns with your goals and adapts to any changes in your circumstances.
Common Considerations When Starting a TTR Pension
Before you start a TTR pension, its essential to understand a few key points:
- Minimum and Maximum Drawdowns: You must withdraw a minimum amount from your account based on your balance (4% of your account balance), with a maximum limit also in place (10% of your account balance per financial year).
- Preservation Age: You must have reached your preservation age, which varies depending on your birth year (between 55 and 60, depending on your birth year).
- Tax on Pension Payments: Payments from your TTR pension are tax-free for those aged 60 or older. For those under 60, the taxable portion is taxed at your marginal rate, though there is a 15% tax offset available.
How Acton Wealth Can Help
At Acton Wealth, we specialise in optimising superannuation strategies, including TTR pensions. Our financial advisors can help you develop tailored TTR strategies that align with your financial goals, maximise tax efficiency, and identify ways to reduce tax while boosting your retirement savings.
Whether you’re curious about the recent Stage Three Tax Cuts and how they may impact you, or you’re looking for ways to save for your retirement in your 40s, our team is here to guide you. We can also help you navigate investment opportunities such as Real Estate Investment Trusts (REITs) to create a steady stream of passive income. Contact us today.
