Income from super before you retire

10 September 2020

will you ever retire

Income from super before you retire

Opening a BUSSQ Transition To Retirement (TTR) income account lets you access your super and keep working.

If you've reached preservation age and are under age 65, and still working, you can use a TTR income strategy to:

  • Supplement your income if you reduce your work hours, or
  • Boost your super and save on tax while you keep working full time.

How much do you need to invest?

You can start a BUSSQ TTR income account by transferring some of your super, at least $25,000, from your BUSSQ super account or any other super account you may have. You need to keep some money in your super account to continue to receive your employer's compulsory contributions, or any voluntary contributions you make.

Use a TTR strategy to reduce work hours

If you want to reduce the hours you work, a TTR strategy can top up your income and can be tax effective as well.

PROS

  • Continue to receive super contributions – This helps to replace the money you take out
  • Pay less tax – If you are age 60 or older, your TTR income payments are tax free. If you are preservation age to 59, your income payments are taxed at your marginal tax rate, but you get a 15% tax offset. Investment earnings are taxed at the concessional rate of 15%.
  • Ease into retirement – You can start planning what you'll do with your leisure time before you completely retire.

CONS

Let's take a look at how a TTR strategy helped Steve reduce his work hours, but not his pay.
Steve, who has just turned 60, has $150,000 saved in super. He currently earns $75,000 a year before tax, so his take home pay is $2,214 per fortnight. Steve wants to cut back his hours to four days a week, but he doesn't want to reduce his fortnightly pay. After talking with a BUSSQ rep, Steve learns he can:

  • Cut back his hours to four days a week and receive $1,836 per fortnight
  • Open a TTR account and request a fortnightly payment of $378.

This means Steve can not only enjoy his extra day off, but he can do so without losing any of his pay.

Using your TTR to save on tax

You can use your TTR income to grow your super and pay less tax in the lead up to retirement. This strategy works best if you are 60 or older and a mid to upper income earner.

PROS

  • Boost your super – A TTR income can be used with salary sacrificing to top up your super as you approach retirement
  • Save tax – You pay 15% tax on salary sacrificed contributions. This is likely to be lower than your marginal tax rate. Investment earnings are taxed at the concessional rate of 15%.
  • Pay less tax on income – If you are age 60 or older, your TTR income payments are tax free. If you are 55 to 59 you are taxed at your marginal tax rate, but you get a 15% tax offset.

CONS

  • Complexity – You may need to pay for financial advice to understand if a TTR income account strategy is for you.

Let's see how Kyle uses his TTR to reduce tax

Kyle is also age 60. He earns $75,000 a year and has $150,000 saved in super. Kyle plans to retire at age 67. So, with only a few years to go, he wants to do everything he can to boost his super savings.

After talking with his financial planner, he learns he can:

  • Contribute an extra $1,250 each month ($15,000 or 20% per year) using salary sacrifice, which reduces his taxable income
  • Open a TTR account and request a monthly payment of $818.75 ($9,825 per year), which will be paid tax free because he is over 60.

This means over seven years Kyle will add $21,744 to his super without affecting his take home pay.

Flexibility

With a BUSSQ TTR Income account you are not locked into any particular investment strategy if you don't want to be. BUSSQ gives you the flexibility to move your investments around at any time. You also have the flexibility to design your own investment mix. There are a range of options from which you can choose, or you can choose The Smart Income strategy where the mix is determined for you. Details of these are available online or in the Income account PDS.

The Smart Income strategy

The Smart Income Strategy is a mix between Cash and Balanced investment options - 15% in Cash and 85% in Balanced, with payments being made from the Cash component.. Using short term money (Cash) for your income payments and leaving the rest of your money invested in Balanced (a longer term investment) giving it time to grow before you need to draw on it. The Smart Income Strategy is the default option for BUSSQ's TTR income account.

Minimum and maximum limits

The federal government has set annual minimum and maximum payment limits. The usual minimum limit is 4% and the maximum 10% of your TTR account balance. However, with the recent health and economic disruption caused by COVID-19, the minimum limit has been halved to 2% for the 2019-20 and 2020-21 financial years.

Minimum and maximum payment limits are calculated when your account starts and then annually thereafter on 1 July. You also have the flexibility to decide, at any time, how much over and above your minimum limit you may wish to receive in payments for the next year, providing it is lower than your maximum payment limit.

Fees

Your BUSSQ Transition to Retirement Income account does not have a direct administration fee. The fees you pay for this account will vary based on the investment options that you select. For more information please refer to the Income account PDS.

Getting started

To open your TTR Income account give us a call on 1800 692 877 or download the Income account PDS and complete and return the Join BUSSQ Income account form.

Want to find out more?

To get some sound personal advice on which is the best way forward for you then talk to a Skylight Financial Solutions financial planner. They will be only too happy to assess your personal situation and put you on the right track. Skylight was built by BUSSQ. So, why not give Skylight a call today and speak to one of its highly skilled professionals. Call 1800 SKYLIGHT . 1800 759 544 to book your appointment or visit skylight.com.au.

Source: moneysmart.gov.au

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