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Preparing for retirement

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As you get closer to retirement, the importance of your superannuation becomes much clearer. Fortunately, when you turn 55, new options help you to boost your super savings. In particular, we'll look at Transition to Retirement.

Are you on track for retirement?

How much money do you currently have in savings? Are you on track for a comfortable retirement? Use our Retirement Super Tracker calculator to check your progress.

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Strategies to boost your super savings

Superannuation offers one of the best opportunities to boost your retirement savings because generally super is taxed less than normal investments. There are several different super strategies you can consider but you don’t need to pick just one. As you'll see, you can often achieve a better result if you choose more than one strategy.

Transition to Retirement

Available to over 55s, Transition to Retirement is a strategy that involves taking some or all of your super and converting it into a pension, even if you’re still working. This allows you to:

  • Reduce the hours you work without necessarily reducing your income
  • Use some or all of this pension to invest in super
  • Take advantage of lower taxes to boost your retirement savings.

The tax benefits of Transition to Retirement

The real benefit of Transition to Retirement is that by taking money out of your super and putting it into the pension environment, any investment earnings you receive will be tax-free. Your return from this money will be higher than if it remained in your superannuation account.

What to beware of with Transition to Retirement

Although there are tax advantages, when you have a pension there is a minimum amount (draw-down) that you must take out each year. You need to be careful that this doesn’t deplete your super too quickly. One way to avoid this is through our next strategy - salary sacrificing.

Salary sacrificing

Salary sacrificing is when you reduce your salary in return for your employer making additional contributions to your super. Again this has tax advantages. Salary sacrificing means you can get the tax advantages of Transition to Retirement without depleting your super so quickly.

After-Tax contributions

The Government wants you to invest in your super. That’s why super is so tax friendly. If you sell an asset outside of your super, why not invest that money in your super? Due to the tax advantages, it is very hard for normal investments to match the returns you’ll get from super.

Combining super strategies as you near retirement

If you’re over 55, it can be very effective to combine the Transition to Retirement strategy with co-contributions and salary sacrificing, as this case study shows.

Case Study - Transition to Retirement

Michael is 60 and he earns $40,000 per year. He is not ready to stop working full time. He is currently using only Government co-contributions to boost his savings but he also wants to look at combining this strategy with two other strategies: Transition to Retirement and salary sacrifice.

Option 1 – Single super strategy

One option for Michael is to continue with his current single super strategy and rely solely on the Government co-contributions.

Option 2 - Multiple super strategies

Michael's second option is to use Transition to Retirement (TTR) combined with salary sacrificing and co-contributions. He will continue to work full time but transfer $340,000 of his super savings to a TTR pension that will deliver $15,000 a year. He will also make a salary sacrifice of $20,000 to boost his super contributions.

Which option produces the greatest savings at retirement?

Which option is going to produce the most savings at retirement? Let's find out.

 

  Option 1 Option 2
Super strategies Co-contributions Co-contributions
Transition to Retirement
Salary sacrificing
Employer SGC contributions
(after contrib tax)
$3,230 $3,230
Salary sacrifice contribution - $20,000
Less contributions tax (15%) - -$3,000
After-Tax contribution $640 $640
Government Co-contribution $316 $316
Net Super Contributions $4,186 $21,186
Take home pay $34,013 $34,018
Overall tax savings - Year 1 - $2,005

Assumptions

By using the tax advantages of strategies such as Transition to Retirement and Salary Sacrificing, Michael has boosted his savings by almost $43k. Would these strategies also help you?
 

Do you want help with your superannuation strategies?

If you want to talk to an expert about Transition to Retirement, Salary Sacrificing or superannuation in general, call us on 1800 046 144 or email us.

Where do you want to go now?

Do you want help getting your savings on track for retirement?

Do you have a savings shortfall? We can help you try to boost your retirement savings. Call 1800 046 144 or email us.

Let’s look at some ways to help boost your retirement savings.