Watching my clients over the years, I came to the conclusion that the age of 60 has to be the best age of your life.
Physically you are very active, and unless you have your personal health issues,
and there is really not much that can stop you, emotionally, you appreciate real important things in life,
things that matter such as: family, friends, community.
You want to discover the word, make difference, help those that need your assistance -
help your kids, be involved in your community, participate in charitable activities.
People at the age of 60 plus are some of the happiest people on the planet - now you know why I love my work,
I am surrounded with happy people - all the time.
Financially you are at the prime of your financial position, you might want to reduce working hours, or maybe stop working altogether
and start enjoying financial fruits of your life labour and have some fun.
But then a big question arrives, can I have access to my savings if I want to retire or partially retire now?
These days most people have majority of savings in superannuation - a beautiful financial nest egg build overtime
with your employer contributions, as well as your personal contributions if you made any.
If you haven't been contributing, it is not too late, as super has huge benefits, especially in retirement.
Just watch series of my superannuation videos to find out about superannuation system in Australia,
all pros and cons, best ways to contribute and what to watch out for.
You will find the link to the series listed above me - just about now, as well as at the end of this video.
So from those videos you learn how to put the money in, why you should do it and all the issues in between.
And today we are talking about the other end of superannuation story - taking your money out.
I already created a video: "When can I access my super?" that explains the main rules of accessing your super savings,
but today I want to discuss in details how to do it if you are of the age of 60,
so you have reached your Preservation Age, but you want to just slow down working, and not fully retire yet.
Can you have access to your superannuation in this situation since you have not met Conditions of Release yet?
If you wonder who I am - my name is Katherine Isbrandt, I am CFP and you are watching About Retirement TV,
the place to discover all the information you need to get financially ready for your perfect retirement or if you have already retired,
how to improve your income and assets position for the remainder of your retirement, irrespective of the market has been doing.
As I always say, Retirement is a journey not a destination, so you better be well prepared for your retirement ride
A good news is that if pass the age of 60 and you wish to continue working,
you can access your super by commencing a retirement income stream with your superannuation money -
this is when we can set up Transition to Retirement or so called TTR.
What is TTR and how does it work? Well the easiest way to explain is with example.
Let's assume you are 60, and your retirement savings in super amounts to $500,000.
Instead of keeping that $500,000 in super account which is your accumulation phase,
based on your age, you have reached your Preservation Age, which allows you to rollover the super balance to an income stream (retirement phase),
and that income stream will start paying you an ongoing income.
When to use Transition to Retirement?
If you want to only work part-time, obviously your wages have reduced,
therefore you can supplement your income from work with extra income paid from your TTR income stream
or otherwise, if you want to continue working full time, while you want to boost your super and save on tax.
Who is eligible for TTR?
If you have reached your Preservation Age and your are still working.
Preservation age is between age of 55 - 60 depending on your date of birth.
An important note is that TTR can only work with your superannuation from the accumulation fund and not a defined benefit fund.
But really it's only about 10% of Australians have a defined benefit, mostly public sector employees,
So most likely it won't be a problem for you.
How much can you draw from TTR pension?
You can decide on income anywhere between 4% and 10% of the TTR pension balance calculated on 1st July each financial year.
Due to extension of reduction of the minimum income payments for another year, so for 2021/22
the lowest level of income you can draw from TTR now is actually not 4%, but as low as 2%.
So Tax on TTR Retirement Income Stream?
If you are 60 or older, your TTR pension payments are tax free.
If you are 55 to 59, your pension is taxed at your marginal tax rate, but you get a 15% tax offset.
So let's now look at two examples.
Adrian is 60, he is a team leader in a factory with income of $80,000. His job is very demanding and pretty stressful
therefore, Adrian wants to reduce work to part-time only and start enjoying time with the family and do a little bit of traveling.
His superannuation balance is $700,000.
Adrian decides to reduce his working hours and drop down his income to $50,000.
He can decide much to roll-over from his super to a TTR pension to pay him extra required income.
So his decision is to top up the earned income with extra tax free income from TTR pension of $10,000.
As this is tax free income, and the level of tax paid of earned income has also decreased,
the total is more than sufficient for Adrian's living expenses.
So Adrian is happy, the same level of income after tax, more free time to do what he wants.
Stacey is 60, working in management on $120,000 annual income. She wants to boost her super balance, as due to a nasty divorce,
her super is not at the level it needs to be to provide for a comfortable retirement,
but Stacey would like to reduce her tax at the same time. Her super balance is $350,000.
Stacey decides to rollover her super to TTR pension, draw 8%, which amounts to $28,000,
which is a tax free income and then make a salary sacrifice of maximum allowable amount of $27,500 for 2021/22 financial year.
By salary sacrificing $27,500, Stacey's personal tax dropped by $8,938
But she has to pay a 15% contribution tax which is $4,125.
Therefore the total outcome is that Stacey managed to save a whopping $4,813 in tax for that year.
Obviously Stacey is very happy, not only her level of disposable income has not changed,
but on the top of this, she saved almost $5K in tax.
By the way if you are not sure what Salary Sacrifice is and its benefits watch my video "Salary Sacrifice Australia - tips, traps & benefits".
So how do you like this strategy? Do you think you could implement it for your benefit?
I reckon this is one of the best super strategies for anyone working pass the age of 60.
If you would like to understand if this is the strategy for you, just contact me directly and I can provide you with personal advice for your specific situation
and how you can improve your retirement savings, reduce your tax and prolong life of your savings to ensure you never run out of money.
If you like this video, please LIKE it and SUBSCRIBE to my channel not to miss my next video.
So let's review now, what are the benefits of TTR?
Well you can enjoy less working hours with the same pay, you can reduce your tax,
you can slowly prepare yourself for retirement - you can start planning for your upcoming retirement
not only from finance perspective but you can check how you enjoy this part-retirement,
to decide if you are actually ready for this decision.
So what are Negatives of TTR?
If you start drawing down your super early, you will have less when you finally decides to retire fully,
and in turn your retirement savings will not last as long as you might want.
This is why, going over the proper calculators that show you the expected life-span of your superannuation savings is so important.
Every year you should know the impact of your income withdrawals on the total of your superannuation savings
and how long will that money support you.
So now I would like to ask you a question,
how much tax are you able to save with this strategy?
If you are still unsure or would like to find out how to optimise your income,
your superannuation contributions while minimising your overall tax, just contact me directly.
My contact details are listed in the description below this video.
Also, visit my website: AboutRetirement.com.au where you will find lots of articles,
all the videos lots of extra information, all relating to pre and post retirement.
And while you are there, sign up to my email list to be kept inform about all the changes that can impact your finances during this period of your life.
And now I would like to invite you to watch those superannuation videos I mentioned before,
how to contribute to super and what type of super contribution
is the most beneficial for you, explanation of all rules and regulations.
The second recommendation is for you
to start thinking about actual retirement,
How to optimize your retirement savings
for the best retirement you can have.
If in any doubt, I am just a click away, all the best. Bye