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What is transition to retirement (TTR)?

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I am approaching 55 years of age and am thinking about going to part-time work and I am told that there is a thing called transition to retirement or TTR. Can you explain how this works as I thought you had to be at least 60 to access your super?

Yes, the TTR option is available when you hit 55 years of age and that’s your preservation age, which is when you can get at your super. By doing this, you might be able to cut your working hours, effectively going part-time, but you won’t have to cut your annual income and you do this by accessing some of your super.

Of course you’re tapping into your retirement income stream, but you can keep building it up as well. Under TTR, you can only access your super benefits as a 'non-commutable' income stream. That’s ATO jargon for the fact you cannot take your benefits as a lump sum cash payment while you’re still working.

By the way, not all funds offer TTR, but if your one doesn’t, you can switch funds. On the tax you pay if you've reached your preservation age and are less than 60 years old, the taxable part of your income stream will be taxed at your marginal tax rate. If your income stream is paid from a taxed source – your super fund – you will also receive a tax offset equal to 15 per cent of the taxable part of the income stream, and once you turn 60, your super income from a taxed source will be tax-free.

On how much you can get, no more than 10 per cent of the account balance, as at the start of the financial year, may be paid each year. And when you go to TTR, your boss still pays the compulsory nine per cent super guarantee contributions on the relevant wages.

You can also make salary sacrifice payments to help build up your super. So if you had $500,000 in your super fund, you could draw down $50,000 or 10 per cent via a TTR and you could go to part-time work taking your pay from $100,000 to $50,000, but your tax-free pension makes up for that. And if you only needed $30,000 to live and have a good time, you draw that out of your fund and you could salary sacrifice up to your $50,000 cap, which would keep topping up your super fund.

The TTR gives you a number of options and if it means you work less and you can keep building up your super, then it’s not a bad idea.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

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.

Published on: Wednesday, August 17, 2011

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