Some people try and stay working for many reasons which may include needing the income or just simply because they enjoy working and the benefits it can create.
There is a system in place which allows you to draw on your superannuation whilst you are still working called Transition to Retirement (also known as TTR). Utilising this system may allow you to save on tax and boost your superannuation savings.
What is Transition to Retirement?
Previously Superannuation accounts could only be accessed once you turned 65 or you had retired. Access to the funds when you retire is determined also by you having reached your preservation age (commonly this is 55 years old). The TTR scheme allows you to draw a pension from your super once you have hit your preservation age but not necessarily retired.
With this scheme, you can either keep working and boost your super, or reduce your hours of work but supplement the reduction of income that comes with this. You preservation age is determined by your Date of Birth.
How much can you draw as a pension in Transition to Retirement?
You are able to draw between 4 and 10% of your super account each financial year. This will not be given as a lump sum but in instalments. Under a scheme by the Government for 2012/2013 financial year the minimum amount you have to withdraw is reduced by 25%.
Saving tax with transition to retirement
The TTR scheme can be tax beneficial in three ways. The tax on fund earnings reduces from 15% to nil. Whilst pension payments are taxable, there is a 15% rebate for those under 60 and tax-free for those over 60. Lastly, you can then salary sacrifice any excess income back into your super which provides some tax benefits. Make sure you check with your financial adviser whether there are tax benefits for your situation.
Boosting your super with Transition to Retirement
Since you are still working, your employer must continue to make superannuation payments into your super account. You can also salary sacrifice some pre-tax earnings which are taxed at a lower rate and boost your super account even more.
Things to consider with Transition to Retirement
Make sure that your super fund offers this type of pension option, as not all of them do. You also need to consider how much income you would like to draw and whether this is the best option for you. It may also affect any social security entitlements and potentially your life insurance within your super fund. Make sure you check with your super fund and financial advisor to see whether this scheme is right for you.