Tim Howard, Technical Expert at BT, agrees, saying that a modern-day retirement often means more than waking up one day and not having to go to work. “Your ability to retire the way you want, more often than not, will come down to the plans you put in place today,” Tim says.
Rather than exit the workforce overnight, you may have the option of winding down your working week ahead of full-time retirement. A transition to retirement pension (TTR) strategy provides you with the ability to receive an income stream from your super without having to give up work entirely, so you can reduce your working hours while having the same take home pay. 1
Depending on your age and the taxable and tax-free components of your super, also, some of the money you withdraw as a TTR pension may be tax-free. The rest is assessed at your marginal tax rate (can be up to 47 per cent including Medicare levy), but with a 15 per cent tax rebate. 2
“Optimising your TTR strategy can take a bit of calculating and its best to review your strategy each year to make sure it remains on track,” Tim says. “You may consider working with a financial adviser to ensure your strategy is achieving the best outcome possible for you”.
Along with the need to keep busy, it’s also important to consider the financial aspect of retirement.
This may mean learning to live on a reduced income or a less regular, less predictable income than in your working days. Get a feel for what lies ahead by drawing up a retirement living budget. Try living on this level of income to see how well you manage, but keep in mind, that many Australians are entitled to additional income support through the age pension, along with enjoying other senior concessions. “In retirement it almost becomes more important to understand where your money is coming from and going to,” Tim says. “You’re likely to have new sources of income from a superannuation pension and possibly some government age pension, as well as new expenses you may not have thought of as you start to enjoy your retirement years.”
Sometimes retirement can be ushered in a little sooner than expected through redundancy.
According to Tim, it’s important to know how your redundancy payment will be calculated. “A redundancy payment may contain a number of different components - from a pay out of your unused leave, through to an amount reflecting your years of service with the company. Each component may attract a different rate of tax ”. It’s also important to note that genuine redundancy and early retirement scheme payments are tax-free up to a limit based on the employee’s years of service.3
Only a payment for a genuine redundancy is eligible for the tax-free limit. Keep in mind that a non-genuine redundancy is not eligible, and occurs when the employee:
Whether stopping work is planned or unplanned, it’s important to put as many steps in place as possible for the retirement lifestyle you’ve always wanted.
Things you should know
The article was prepared by BT. BT is a part of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714. This information is current as at 19 August 2019. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. Any tax considerations outlined in this publication are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of super investments can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.