Preparing for retirement is all about identifying your priorities, so it’s important to know how…
As your retirement draws closer, you should be feeling excited and prepared but for so many of us, we feel dread and worry.
Your superannuation plays a big role in your golden years as it funds your retirement lifestyle. You should be aware of your superannuation options for retirement and have plans in place to access your super well before you approach retirement.
Not many people know this but there are actually two ways to access your superannuation at the age of 60 – all while still working.
The main difference between the two options is the level of access you have to your super: one way allows full access while the other gives you restricted access. Even if you are still working, you can access your superannuation as soon as you reach your preservation age.
Your preservation age will be different depending on the year you were born. Use the ATO table below to determine your preservation age.
|Date of birth||Preservation age|
|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|
So, once you reach preservation age and are able to access your super, which method will you choose?
Method #1: Restricted Access to Your Super
Once you reach your superannuation preservation age, you can now begin a Transition to Retirement (TTR) Pension income stream, which can use some or all of your superannuation accumulation balance while you continue working.
This allows you to take anywhere from 4 -10% of the TTR pension amount each financial year, based on the value of the pension on July 1 of each year.
If you start your TTR Pension later in the financial year, however, the 4% requirement is prorated, and the 10% level remains.
Consider this formula: Minimum annual amount ($) x (Days in Payment Period/Days in Financial Year)
While you will still be receiving income from your work, you may decide to cut down on your hours as you transition to retirement. Therefore, you can use the funds you receive from your TTR pension to financially support your retirement.
You can also consider making a Concessional Contribution to your super to reduce the amount of income tax you have to pay.
Method #2: Full Access to Your Super
Alternatively, if you decide to completely retire, you will have complete access to your superannuation balance.
You can then choose to use your super to fund an account-based pension, a lump-sum exit from super, or a combination of the two.
Within an account-based income stream, all investment profits are taxed at 0%. So, assuming a $500,000 balance and a 4% annual income earnings rate, this would result in a $0 annual earnings tax.
Even if your employment agreement had ended, returning to work the next day should not prevent you from having full access to your retirement funds. Any future payments to superannuation made after you satisfied the requirements would, however, be ineligible. To access further contributions, you will have to fulfil yet another requirement of release.
Method 2 needs permanent retirement OR attaining the age of 65 to be eligible for lump-sum withdrawals. The tax withdrawal will be determined by the tax components that make up your superannuation amount, assuming you have satisfied the criteria of release. For this reason, it’s best to contact your wealth advisor to learn about the tax implications of your balance.
The money received is also taxed the same, whether it comes from a TTR Pension or a regular Account Based Pension. The main difference between the two income streams is that a TTR Pension has a yearly maximum income restriction of 10% and does not enable commutations.
Most Australians rely on superannuation to finance their retirement lifestyle, and it is likely to be your greatest asset outside of the family home when you eventually decide to retire. At the end of the day, it’s all about planning early. So, learn about your investing alternatives so you can construct a portfolio to support your income stream upon retirement!
Are you looking for professional superannuation services? Newcastle Financial Planning Group can help you with the best ways to maximise the benefits of your super and start your retirement financial plan.
Get started today with specialised superannuation and planning advice from the friendly team at NFPG! We have offices located in Newcastle, the Central Coast, and Sydney.
The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group and Sydney Wealth Advisers are subsidiaries of Coastal Advice Group which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.