Retirement Saving Opportunities for the over 55’s

Some people may prefer to ease into retirement gradually by cutting back working hours and drawing some income from their super before they fully retire. They can do this by utilising the ‘transition to retirement’ strategy.

Extra savings there for the taking

We have helped a number of pre-retirees take advantage of this strategy and most are pleasantly surprised when they discover the additional savings that can be achieved in the 10 year period leading up to retirement. It is startling to think that many people will go all the way to retirement blissfully unaware of the thousands of dollars in potential savings that they are passing up.

Accumulated superannuation monies can be converted to a ‘Transition to retirement account based pension’ up to ten years prior to retirement (depending on date of birth). This then pays a set regular income stream to supplement earned income.

Avoid tax on earnings within super

One of the attractions of utilising a transition to retirement pension is the tax break on earnings. Once in an account based pension, all investment earnings are tax free. This can make a massive difference to building super balances in the years leading up to retirement.

The income stream itself also has tax concessions. For those under age 60, you can offset your income tax by an amount equal to 15% of the pension income amount, so someone who is drawing an income stream of, say, $10,000 a year will be able to take $1,500 off their income tax bill. For those over age 60, the pension income is entirely tax-free.

Different strategies meet different needs

Another strategy for those intending to work full time up to retirement is to restructure income by salary sacrificing earned income into super and replacing this income with an account based pension.

The pension income balances out the salary sacrifice contributions, so net take home income remains unchanged. For those over age 60, this strategy reduces taxable income. Combined with tax free investment earnings and the potential 15% tax offset, the bottom line is that super accumulation is accelerated with no net change in cash flow.

Account based pensions can also be used as a means of going into semi-retirement without any drop in income. This can assist in paying off mortgages sooner, rather than after complete retirement. This can save thousands in interest, leaving people in a much better net position when they retire.

If you are interested in seeing how a ‘transition to retirement strategy’ can work for you, contact Liberum Financial on 3233 6470.

The information provided is general in nature and does not take into account your particular investment objectives, financial situation or insurance needs; we therefore recommend you seek advice tailored to your individual circumstances before making any specific decisions.

Liberum Financial and its advisers are Authorised Representatives of Fortnum Private Wealth Pty Ltd ABN 54 139 889 535 AFSL 357306 Australia Credit Licence No 357306 trading as Fortnum Financial Advisers.