1.How do transition to retirement income streams work?

They allow you to withdraw up to 10% of your superannuation savings in the form of a pension without needing to stop work.

Even if you’re nearing retirement age you mightn’t be looking to leave the workforce just yet. Maybe you want to save more money, or perhaps you enjoy the mental stimulation and interaction.

Whatever the reason, having access to a transition to retirement (TTR) income stream could provide greater financial flexibility, as you can periodically withdraw money from your super while continuing to work full-time, part-time or casually.

2.What’s a TTR income stream?

It’s a type of pension that enables you to access some of your super via periodic payments, even if you’re still working and receiving an income from your employer or business.

To access your super this way, you must have reached your preservation age, which will be between 55 and 60, depending on when you were born.

See the table below to work out what your preservation age is.

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
1 July 1964 and onwards 60

3.Are there withdrawal limits?

You can only withdraw between 4% and 10% of your super savings each financial year. And, you aren't able to make lump sum withdrawals unless you meet certain conditions of release, such as retirement.

It’s also worth noting the income you receive is based on the amount you have in your super, so you won’t be guaranteed an income for life.

If you’d like an idea of how much you’ll have in retirement and how long your retirement savings might last, our online retirement simulator tool can help you crunch the numbers.

4.How are TTR income streams taxed?

Up to age 60, the taxable amount of your income from a transition to retirement (TTR) pension is taxed at your personal income tax rate, less a 15% tax offset. Then, once you turn 60, the income you receive from your TTR pension is completely tax-free.

While the tax treatment of income you receive from a TTR pension has not changed, the tax treatment of investment earnings on super fund assets that support TTR pensions changed on 1 July 2017.

Before 1 July 2017

Investment earnings on super fund assets that supported a TTR income stream were previously tax free.

After 1 July 2017

Earnings on fund assets supporting a TTR income stream are now subject to the same maximum 15% tax rate that applies to super accumulation funds.

5.What other things should I consider?

The ability to commence a TTR income stream may present you with some useful opportunities.

For example, you could either work less, or work the same hours while sacrificing some of your salary into super. In both cases, you can use your TTR income stream to supplement any reduction in your take-home pay.

There are however numerous things to consider, particularly when it comes to weighing up your circumstances and properly assessing any potential tax implications. These include[1]:

  • Talking to your super fund, as not all funds accommodate TTR income streams
  • Figuring out if you want to reduce your work hours, or work full-time and salary sacrifice
  • Thinking about your income sources and calculating your income needs
  • Finding out what your government entitlements are, as there may be implications
  • If you have life insurance through your super fund, checking it won’t be affected.

6.What if I choose to retire?

If, after you reach your preservation age, you decide you’d rather retire from the workforce, you will have other options when it comes to your super.

You could:

  • Take some or all of it as a lump sum - while this may be tempting, it won’t be the best option for everyone and there may be tax implications to consider, particularly if you’re under age 60.
  • Move it into an account-based pension - this will give you a regular income in retirement and you won’t be limited to what you can withdraw.
  • Purchase an annuity - these generally pay a guaranteed series of payments over an agreed period. You will however be sacrificing some flexibility as you can’t easily make lump sum withdrawals and life expectancy is also a consideration.

7.Where to go for more information?

For further assistance around whether a transition to retirement (TTR) income stream may be right for you, speak to Russel Molin, Financial Planner at Wealth Financial Strategies.

T 08 6363 0611 M 0434 497 223

F 08 6363 0601 E russel.molin@ampfp.com.au

A Po Box 115 Northlands WA 6905 Unit 14/386 Wanneroo Road Westminster WA 6061

W http://www.wfs.amp.com.au

http://au.linkedin.com/in/russelmolin/

http://facebook.com.au/wf.strategies