The concept of financial independence typically relates to your ability to pay for your own lifestyle costs in retirement without needing the financial assistance of a third party. The reality is that many Australians will, or do, depend on government support either wholly or in complement to their personal savings.
Whether you can fully fund your own retirement, or whether you need third party support, there are a few important considerations both prior and during retirement. If you haven’t done so already, it’s worth discussing these with your professional advisers.
- How much do I need to live week to week given my personal circumstances?
- How much income will my likely superannuation balance generate?
- How will superannuation assets affect my ability to receive government benefits?
- Do I need or will I be eligible for government support?
- Is it important to save money outside of superannuation?
- If my only asset is my house, how long will my money last in retirement?
- Do I need to continue working part time?
- Do I need to purchase a funeral plan?
- What types of pensions are available and suit me?
- Will I need my insurance once I retire?
When considering factors which relate to superannuation remember it’s a complex topic. As much as the government has attempted to simplify it, there are many rules and opportunities to stretch your money further by using this structure.
Superannuation can make a difference to how long your money lasts, so it’s worth taking an interest in it.
It’s also important to regularly review your estate planning and will ensuring you are clear on who is to receive benefits from your estate, and as importantly, how they are going to receive them. While doing this, it’s also important to review who you have nominated as the beneficiary of your superannuation fund.
When approaching retirement, an important consideration is how to invest your savings including superannuation so you are able to replace your wage with regular income throughout retirement. When it comes to choosing how to structure your investments in retirement, it is important your savings are invested in a tax effective way while still maintaining flexibility to cover any unforeseen changes in your circumstances.
Some of the options available to fund your retirement include:
- investing outside the superannuation environment (this may involve cashing out all or part of your superannuation benefits as a lump sum payment)
- using all or part of your retirement savings to buy a regular income stream such as an annuity or a superannuation pension, or
- a combination of both the above.
Transition to Retirement (TTR)
TTR pensions were introduced back in 2005 with the view to provide Australians greater flexibility in regards to their retirement. The idea behind their introduction being the ability for a person to switch from full time to part-time or casual working arrangements, whilst accessing some of their superannuation savings to replace any reduction in their income.
There are actually three main ways you can use a Transition to Retirement Strategy in preparation for retirement . These include, using a Transition to Retirement Pension to:
Provide extra income
Reduce work hours to part time or casual, whilst maintaining your full-time wage or salary, or
Boost superannuation savings and reduce tax.
Before we explain these strategies in more detail, we should quickly recap the main features of a Transition to Retirement Pension:
- A Transition to Retirement Pension is an income stream purchased with superannuation monies.
- A person must have reached preservation age to commence a Transition to Retirement Pension.
- Each year a pension payment between a minimum amount of at least 4%pa and a maximum amount of 10%pa must be withdrawn.
- All earnings on the investments within the Transition to Retirement pension are tax-free.
- Income drawn as a pension payment by those aged 60 and over is tax-free.
- The tax-free component of the pension payments withdrawn by those aged under 60, are tax-free. The taxable component is classed as taxable income and subject to tax at marginal rates, with a 15% tax offset (rebate) attached.
- A Transition to Retirement Pension is a non-commutable income stream, meaning that lump sums cannot be withdrawn from the pension.
- At age 65, the Transition to Retirement Pension will convert from a non-commutable income stream to an account based pension income stream. This means that all restrictions on the maximum pension payments and ability to take lump sum withdrawals are removed.
Retirement means different things to different people so it’s important to find the right solution for your needs. There are many strategies to help you achieve your goals, both in and outside of super. These can be used in the lead up to, and during your retirement.
To find out what’s right for you and your goals, and to help you plan, we can help you review your circumstances.
Give Delta Financial Group a call on 02 9929 3343, and we’ll happily arrange an obligation-free meeting.