Have you ever wondered what difference a transition to retirement (TTR) strategy could make to your final super balance? After all, this is your pay cheque to the lifestyle you want in retirement.

At First State Super we want to assist our members to feel future ready. And for many, this means having more super available to enjoy the retirement you have always dream of.

As you are now over 60 years of age, there is what we call a transition to retirement strategy that could reduce your tax and boost your super by thousands by the time you retire.

Best of all, you don’t need to change your take home pay – yes, this strategy still offers you the pay you need to get by as the years’ progress.

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Transition to retirement strategy

Let’s have a look at two scenarios and the difference this strategy could make to a final super balance at retirement.

Scenario One

Scenario one: Pat has a starting super balance of $200,000

In this scenario we introduce you to Pat who is 60 years of age. Pat has $200,000 in superannuation, earns $60,000 a year and decides to establish a transition to retirement strategy.

He makes salary sacrifice contributions to his super account and draws income from his transition to retirement (TRIS) account to top up his take-home pay.

Using a transition to retirement strategy Pat can significantly reduce the rate of tax paid and can add an extra $39,599 to superannuation over the next 10 years. 

The best part is that Pat has been able to maintain the same level of take-home pay each year.

Income NO transition to retirement strategy WITH transition to retirement strategy
Gross salary (incl. SG) $65,700 $65,700
Less SG contributions @ 9.5% ($5,700) ($5,700)
Less salary sacrifice $0 ($19,300)
Equals taxable income $60,000 $40,700
Less income tax and Medicare levy ($12,147) ($5,199)
Plus TRIS payments $0 $12,352
Take home pay $47,853 $47,853
Super balance start $200,000 $200,000
Plus net contributions to super $4,845 $21,250
Less TRIS payments $0 ($12,352)
Super balance after one year (includes returns) $204,845 $208,898
Benefits to a transition to retirement strategy after one year   $4,053
Benefits to a transition to retirement strategy after ten years   $39,599

Scenario Two

Scenario two: Pat has a starting super balance of $100,000

Let’s see what happens if Pat has a starting super balance of $100,000. Again Pat is 60 years of age, is on a salary of $60,000 ($65,700 including super) and decides to open a TRIS. He makes additional concessional contributions to his super account and draws income from his TRIS account to top up his take-home pay.

In the table below Pat is $3,066 a year better off through his TRIS and salary sacrifice arrangement.

If Pat then continues this strategy over the next 10 years till retirement at age 70, Pat can significantly reduce the amount of tax paid and can add an extra $32,841 to superannuation.

Income NO transition to retirement strategy WITH transition to retirement strategy
Gross salary (incl. SG) $65,700 $65,700
Less SG contributions @ 9.5% ($5,700) ($5,700)
Less salary sacrifice $0 ($15,625)
Equals taxable income $60,000 $44,375
Less income tax and Medicare levy ($12,147) ($6,522)
Plus TRIS payments $0 $10,000
Take home pay $47,853 $47,853
Super balance start $100,000 $100,000
Plus net contributions to super $4,845 $18,126
Less TRIS payments $0 ($10,000)
Super balance after one year (includes returns) $110,144 $113,210
Benefits to a transition to retirement strategy after one year   $3,066
Benefits to a transition to retirement strategy after ten years   $32,841

This scenario has been included for demonstrative purposes and includes general information and financial projections based on assumptions about the future. These figures do not take into account your specific objectives, financial situation or needs. It is recommended that you consult with a financial planner who can take into account your personal circumstances.

  • Two members; one with a TRIS and the other with no TRIS
  • Members are 60 years of age
  • Salary $60,000, plus Super Guarantee of 9.5%
  • Same net take-home pay under all scenarios
  • First State Super administration fees are included
  • Because the member is 60 years of age, there is no tax on pension payments drawn from a TRIS
  • Assumed net investment earnings are based on a Balanced risk profile with:
    • Accumulation 5.04%
    • TRIS 4.79%
    • Retirement income stream (RIS) 5.63% 
  • The maximum (10%) is drawn down from the transition to retirement income stream each year. (The minimum drawdown for a transition to retirement is 4% of the account balance.)
  • The concessional contributions cap is $25,000 p.a.

This scenario is based on a 60 year old with a salary of $60,000 p.a. increasing in line with consumer price inflation(CPI) of 2.3% p.a. and a commencing super balance of $200,000. It includes the following assumptions:

  • Employer contributions (SG) are 9.50% of salary during 2017/18 and increase in line with legislated increases to 12% of salary during 2025/26 and beyond. It is assumed the employer has agreed to calculate SG contributions based on pre-salary sacrifice income.
  • Salary sacrifice contributions and the income from the transition to retirement pension have been adjusted annually during this projection to ensure that Sam's annual take-home pay (after allowance for assumed future changes in the cost of living) remains constant over the projection period.
  • SG and salary sacrifice contributions are taxed at 15% and there is tax on the earnings in the transition to retirement income stream account at a maximum of 15% until age 65. The first year's results are in respect of the year to 30 June 2018 and are based on applicable tax rates and thresholds for the 2017/18 financial year.
  • Assumed net investment earnings are based on a Balanced risk profile with a 6.53% p.a. rate of return.
    • Accumulation 5.04%
    • TRIS 4.79%
    • Retirement income stream (RIS) 5.63%
  • The maximum (10%) is drawn down from the transition to retirement income stream each year. (The minimum drawdown for a transition to retirement is 4% of the account balance.)
  • The concessional contributions cap is $25,000 p.a.

This case study is for demonstrative purposes and includes general information and financial projections based on assumptions about the future. Results may differ depending on the accuracy of these assumptions, your situation and other factors.

Need advice?

We have a team of financial planners who can assist you to set up a transition to strategy that works for you. To find out what a planner can do for you, we offer a no obligation first appointment so you can access whether this is right for you. Book your appointment online or call us.
 

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