Transition to retirement income streams allow you to withdraw up to 10% of your superannuation savings in the form of a pension without needing to stop work.
Even if you’re nearing retirement age you mightn’t be looking to leave the workforce just yet. Maybe you want to save more money, or perhaps you enjoy the mental stimulation and interaction.
Whatever the reason, having access to a transition to retirement (TTR) income stream could provide greater financial flexibility, as you can periodically withdraw money from your super while continuing to work full-time, part-time or casually.
We answer some of the commonly asked questions, including how the tax treatment of TTR income streams changed on 1 July 2017.
What is a TTR income stream?
It’s a type of pension that enables you to access some of your super via periodic payments, even if you’re still working and receiving an income from your employer or business.
To access your super this way, you must have reached your preservation age, which will be between 55 and 60, depending on when you were born.
|Date of Birth
|Before 1 July 1960||55|
|1 July 1960 – 30 June 1961||56|
|1 July 1961 – 30 June 1962||57|
|1 July 1962 – 30 June 1963||58|
|1 July 1963 – 30 June 1964||59|
|From 1 July 1964||60|
Are there withdrawal limits?
You can only withdraw between 4% and 10% of your super savings each financial year. And, you can’t make lump sum withdrawals unless you meet certain conditions of release, such as retirement.
It’s also worth noting the income you receive is based on the amount you have in your super, so you won’t be guaranteed an income for life.
If you’d like an idea of how much you’ll have in retirement and how long your retirement savings might last, there are some great tools online.
What about tax?
Up to age 60, the income from a TTR pension is taxed at your personal income tax rate, less a 15% tax offset. Then, once you turn 60, the income you receive from your TTR pension is completely tax-free.
While the tax treatment of income you receive from a TTR pension has not changed, the tax treatment of investment earnings on super fund assets that support TTR pensions changed on 1 July 2017. Earnings on fund assets supporting a TTR income stream are now subject to the same maximum 15% tax rate that applies to super accumulation funds.
What other things should I consider?
The ability to commence a TTR income stream may present you with some useful opportunities.
For example, you could either work less, or work the same hours while sacrificing some of your salary into super. In both cases, you can use your TTR income stream to supplement any reduction in your take-home pay.
There are however numerous things to consider, particularly when it comes to weighing up your circumstances and properly assessing any potential tax implications.
What if I choose to retire?
If, after you reach your preservation age, you decide you’d rather retire from the workforce, you will have other options when it comes to your super.
Where to go for more information?
For further assistance around whether a TTR income stream may be right for you, it is best to speak to a financial planner. Make an appointment by calling 07 4646 4970 or book online.
Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).
Complied by Emma Linton Doig, Practice Manager
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